At its most elementary level, geoarbitrage makes sense when it lowers your expenses far more than your take-home pay and the gap between your expenses and your take-home pay grows decidedly larger. To show what I mean, let’s take a quick look at the Groovy gap before and after we left New York.
Groovy Gap in Long Beach, Long Island (May 2006)
Monthly Take-Home Pay: $6,500
Monthly Housing Expenses: $2,000
Monthly Expenses Excluding Housing: $2,500
Total Monthly Expenses: $4,500
Savings Rate: 31%
Years Until FIRE: 27.4
Groovy Gap in Charlotte (June 2006)
Monthly Take-Home Pay: $6,500
Monthly Housing Expenses: $200
Monthly Expenses Excluding Housing: $1,300
Monthly Expenses: $1,500
Savings Rate: $77%
Years Until FIRE: 6.4
I wasn’t blogging back in 2006, so admittedly, these numbers aren’t 100% accurate. But they’re pretty damn close. For example, we were budgeting back then and I distinctly remember our monthly take-home being in the $6,500-6,800 range. I also remember socking away $2,000 a month for at least the last year we were in New York. And since Mrs. Groovy kept her New York job and I remained on my municipality’s payroll for another year after our move, our monthly take-home pay was $6,500 for the first year we were in Charlotte. And, finally, here’s another clue that points to the general veracity of these numbers. Mrs. Groovy and I officially retired in October of 2016. But we achieved FI in late 2014, roughly nine years after we left New York. Nine years, in turn, indicates a savings rate of 68%, which is not wildly far from 77%.
Given the above numbers, it’s safe to say that geoarbitrage made a lot sense for me and Mrs. Groovy. But what about others who may be curious about geoarbitrage? How would they know if moving from, say, Los Angeles to Austin made sense—from a gap perspective? Wouldn’t it be great if they had reasonably accurate numbers to inform their decision?
The obvious answer is, “yes.” We need the geoarbitrage equivalent of a retirement calculator.
But here’s the rub.
I did an exhaustive 5 minute search of the interwebs, and I couldn’t find one. But rather than curse my “outrageous fortune,” I decided to fill the void. Because that’s what personal responsibility warriors do. We don’t protest. We don’t hashtag (#whereismygeoarbitragecalculator?). We don’t bemoan retirement calculator “privilege.” And we certainly don’t beg corporate America or the political class to make things right.
Nope, we get off our arses and fix it ourselves. Here, then, is my first stab at a Geoarbitrage Calculator.
The Groovy Geoarbitrage Calculator In Action
I took the Long Beach and Charlotte numbers above and plugged them into my geo calculator. For the cost of living index numbers, I used an index provided by Infoplease. Nassau County’s index was 145.7, and Charlotte’s index was 93.2. And here is what the geo calculator spit out.
Not bad. My geo calculator pretty much nailed the prospective gap.
But what if Mrs. Groovy and I wanted to relocate to Austin, Texas, rather than Charlotte? And what if we decided to rent rather than buy? And what if I didn’t stay on my municipality’s payroll and had to get an equivalent job in Austin? To see what the results would be, I tweaked the entries as follows:
- Prospective Salary One: $41,500 (According to CNN’s Salary Calculator, this is the Austin salary comparable to a New York salary of $76,000.)
- Prospective Monthly Housing Expense: $1,000 (According to Zillow, you can get a decent two-bedroom apartment for $1,000 a month.)
- Prospective City Cost of Living Index: 95.5 (According to Infoplease, Austin is a bit more costly than Charlotte.)
And here are the results.
Hmmm. Admittedly, this wasn’t a fair comparison. I’m sure the rents were cheaper in Austin 11 years ago. And the salary calculator might have erred on the low side. The salary calculator came up with a similar number for Charlotte, roughly 55% of my New York salary. But when I secured a job in my second year in Charlotte, its pay was closer to 65% of my New York salary. Anyway, regardless of my test’s shortcomings, it did show that geoarbitrage isn’t always a slam dunk. Account for rent/mortgage and local salaries, and the prospective gap improvement may not be large enough to warrant a move.
Okay, groovy freedomist, there’s my first stab at a geoarbitrage calculator. What say you? Is it satisfactory? Or does it suck the big one? I’m all ears. Let me know how I can improve it. And if you’re willing to collaborate with me on designing a better one, I’m down with that too.
Enjoy the weekend. And enjoy part two of Talking Trash with Claudia and Garrett. Peace.