But what if you’re muddling along financially and you already live in a low-cost city or state? What if because of health issues, allegiance to family, or employment contraints you can’t possibly take advantage of geoarbitrage? Are you screwed? Are you destined to live a life that’s just one step removed from a paycheck-to-paycheck existence?
Not necessarily. What you lack in geographic mobility may be offset by a little pluck and daring. Let me explain.
Two of my favorite bloggers, Claudia and Garrett over at Two Cup House, want what all self-respecting FIRE enthusiasts want: they want to be debt free and financially independent. One way to speed up the journey to debt freedom and financial independence is to dramatically lower your expenses while simultaneously maintaining or increasing your income. Hence my fondness for geoarbitrage. But because of Garrett’s job, he and Claudia are essentially chained to their bucolic corner of Pennsylvania. Geoarbitrage isn’t an option.
But just because you can’t leave a particular city or state doesn’t mean you can’t leave a particular housing arrangement. In other words, there’s no law saying you must have 1,000 square feet of home for each occupant in your house. Two people don’t need a 2,000 square foot home. They can perfectly manage in a home that’s 1,000 square feet or less. Welcome to the world of spatial arbitrage.
“If you cannot do great things, do small things in a great way.”
Claudia and Garrett are my favorite example of people who have taken advantage of spatial arbitrage. They remained in the same zip code but ditched their 1,500 square foot home for a 536 square foot home. In one fell swoop they dramatically lowered their housing costs and their monthly expenses. Here are the results:
Mortgage free: In November of 2016, Claudia and Garrett made their last mortgage payment on their 536 square foot home.
Debt free: In March of 2017, Claudia and Garrett made their last student loan payment and became completely debt free. Just fifteen months earlier, in November of 2015, their total debt amounted to $240,352.35. Talk about the power of spatial arbitrage!
Financial independence: Claudia and Garrett are on target to be financially independent in May of 2019.
The Power of Spatial Arbitrage
Claudia and Garrett have the world by the short hairs. They’re in their early 30s, own their home outright, are completely debt free, and will be financial independent in less than two years. And this enviable state of affairs is largely due to spatial arbitrage. Claudia and Garrett realized that they could weaponize—in a financial sense—their willingness to forego the amount of square feet that conventional wisdom says they should live in. Fifteen hundred square feet hamstrung their quest for financial glory. Five hundred and thirty-six square feet catapulted it.
“I don’t take on big things. What I do, pretty much, is make the big things small and the small things big.”
Make no mistake: allotting two hundred and sixty-eight square feet for each household occupant is not a recipe for nirvana. And to their credit, Claudia and Garrett are very upfront about the problems of going small. See here, here, and here.
But if you can make peace with the various issues that inevitably accompany going small, and you can handle living “kneecap to kneecap” with other human beings (thanks Chris Hogan), spatial arbitrage is a great way to turbocharge your quest for financial independence. It’s also a great alternative for those who are duty-bound to live in their current zip code.
Okay, groovy freedomists, that’s all I got. I find the notion of spatial arbitrage just as intriguing as geoarbitrage. And it’s something I hope to explore in future posts. But what say you? Is spatial arbitrage a legitimate alternative for those who can’t take advantage of geoarbitrage? Or does downsizing and living in a confined space—despite the obvious financial benefits—give you the heebie-jeebies? Let me know what you think when you get a chance. Peace.