Geo-arbitrage is the idea that you can earn money in one part of the world and spend it in another. If you do this, often you will find that your dollars (or pounds / euros / francs / krone) go further, and you can afford a higher standard of living, partially due to exchange rates.
Of course, you could also use geo-arbitrage to flat-line your expenses in the hopes of starting a business on your laptop. In that case, you move to a place where the cost of living is cheap.
One thing I can’t totally believe, though, is that everybody who wants to start a business from their laptop can all of a sudden completely flat-line their expenses by moving to the absolute cheapest places on the planet.
Perhaps there are some people who can do this– people who work from their laptop while sitting on their single bed in the middle of some 3rd world rural village.
I’ve actually met people who tell me they have no problem sleeping on couches and floors, eating rice and potatoes, going days without showering, and living in remote places. For them, it is something that comes easy. It doesn’t bother them.
For other folks, such a drastic experiment in cost minimization just won’t work… I am one example.
I simply could not be dirty for several days, be satisfied eating rice and cabbage, and be content sleeping on a rock hard mattress in the middle of a god-forsaken, 3rd-world pueblo. I just couldn’t do it.
Not only would I not be happy, but I would not be able to get work done there. I am just not that type of person.
Not only are their minimum living standards I am accustomed to (and, I would say, ‘need’), but also there are certain aspects of life that I now realize I can’t go without… things like a vibrant city, things to do, decent weather, pretty girls, sense of well-being, and modern technologies not far away.
Along that note, I think there are different kinds of geo-arbitrage we might talk about for internet entrepreneurs (i.e. those that want to start a business from their laptop):
1. The Radical, Indestructible Vagabond
This is the guy you could imagine living in a hut in the middle of a forest. He generally has a good metabolism, sun-tanned skin, and wears a thread necklace capped by a pendant he got while in hitchhiking through India. He eats mainly rice and spaghetti and other simple, low-cost meals. He can cook coffee on a fire made out of sticks. He has been traveling for 15 years ever since he was a teenager and speaks fluent Spanish and Thai. He sleeps on floors if he has to, wades through knee-deep water to reach a campsite, and picks up snakes with his bare hands like it’s no one’s business.
This man is indestructible. If he decides to start an internet business, it usually is either a really interesting travel/ adventure blog, or an alternative niche site like where to find the best marijuana in the world. The laptop he carries around isn’t be top of the line– most likely it’ll be that first generation Toshiba from 8 years ago– the one with zero battery life, a screen that’s half-cracked, and debris inextricably fallen in between the letter keys.
Yet this man is strong because he can get work done absolutely anywhere and under any conditions. He is resilient and not easily bothered. He fondly recalls spending time in the remote areas of Thailand where his monthly expenditures hovered around $150 per month. He didn’t have internet at the time, and the power was unstable, but he was able to write the basic manuscript of what will be a book. Now he’s just trying to figure out self-publishing.
2. The Homely, Smart Minimalist
This is the girl who might get a little dirty every now and then, but always looks forward to returning to her dorm or apartment to take a shower and wash off all those germs. She makes Asian herbal tea every morning and afternoon on the stove. Her eyes peer over her white porcelain mug, which she holds with two hands, to read the latest headlines on the Huffington Post.
Afternoons she usually goes for a walk through the cobble-stone streets of the town center, always taking in the historic architecture of the cathedrals and the two turtle doves perched in their nest on the roof. She stops in to the bakery just around the corner for a freshly made roll, and makes chit chat with the owner, who invites her to her house that weekend for their daughter’s birthday. On her way home, she also runs into a guy who she met at a Couchsurfing language exchange.
On days when she doesn’t go for a walk, she checks the classifieds of the local newspaper for yoga classes she could go to, as she knows she needs to maintain balance in her life.
Unfortunately for her, she spends too much time reading and commenting on blogs for her to make great progress in building a business, but because of her social media activities, she eventually grows a very successful following on her blog. She maintains a very healthy diet because she mainly cooks for herself at home and is semi-vegetarian. She walks 3 miles to the local farmers market twice a week.
3. The Sensible Yet Lively Boot-strapper
This guy had a revelation once upon a time that he could build a business from his laptop, and he could generate income online. He was in a corporate job with a decent salary but hated the time commitment it required. So, after cutting his expenses and saving a good $15,000, he finally quits his job and moves to a place in the world that is low cost where he could live and work on his business.
When he arrives, he stays in a hostel initially just to get the feel of the place and get some local knowledge. But he definitely does not prefer hostel dorms as they tend to be crowded, smelly, and loud. He wants a place he can work and begins the search for an apartment immediately.
After finding an apartment on the better side of town (not the ‘best’ side of town) with decent wi-fi and a desk, he settles in and really gets to work on his business. He recognizes that some days will require long hours, but also that he is looking for locations around the world where he can enjoy living, so he signs up for salsa classes and joins a gym to have a few hobbies and maybe make some friends to get connected with the local culture. When the weekends come up, he always asks around to see if people are up for going out.
This guy always shops at the supermarket closest to his apartment, as he is not willing to walk more than 10 minutes to get food. Food is basically inconsequential to him, but he doesn’t waste his money. He sometimes makes a basic stir-fry or grills some fish at home, but often he doesn’t have time to cook, so he runs over to the nearby sandwich shop to pickup dinner.
He keeps his eye open on a number of blogs reporting on what it’s like to live in various parts of the world, and dreams about the possibilities that being location independent will have for him. He longs to live in Brazil, but realizes that his current income streams can’t support it just yet.
4. The Wealthy Explorer
This is the guy who was part of a team that founded and eventually sold a technology company. Consequently has a large pile of cash to enable him to do whatever he wants. He rather quickly climbed the ladder of success and now finds himself with some freedom to travel.
When he arranges his travel, he books a 4 star hotel in advance. On the way to his destination, he reads the upscale guide to the foreign city and arranges his first week to see the sights. After 3 days he has already done every tourist activity in the city and has taken 400 photos with his brand new $2000 HDR camera. He returns to his hotel room to begin to arrange for his descent upon the most exclusive nightlife spots in the city. The bars happily welcome him, but the clubs turn him away because he has no girls. This man may or may not have social skills because he puts so little effort into getting to know people.
This man, of course, is only tangentially interested in lowering his costs, hacking frequent flyer miles, and staying in hostel dorms. He may stay in a hostel from time to time but only if he is assured a private room. He has a Macbook Air, a Kindle Fire, an iPhone 5, and a Swiss watch he bought in Zurich. He plans his visits to various places around the world primarily through what he wants to see, and makes a personal goal to visit every country on the earth and take a photo at every Ancient and Modern Wonder of the World.
He decides to make a travel website for a place to talk about the places he went and post his photos. He spends $700 on a custom design which makes his site look like a corporate enterprise rather than a personal blog. The world to him is a big thing to explore, so he rarely stays in one place longer than a couple weeks.
Truth be told, this man has enough money not to be so concerned about geo-arbitrage.
So, you see, the lifestyle to which you find yourself most attracted to will determine the kind of geo-arbitrage you do. You don’t have to view flat-lining your costs as one-dimensional, though whichever lifestyle you end up in will determine what kind of runway you need to build for yourself.
For example, right now I live in Colombia. As much as I’d like to cook soup for myself at home, ride buses everywhere I go, and not go out on the weekends, I simply cannot do this.
As a young man, I find it incredibly difficult to spend my time confined to my apartment 7 days a week and spend my attention seeking out the best deals on groceries and other domestic ways of saving money. This may be a fault of mine, but I’ve come to accept it… The homely, smart minimalist can definitely be successful online, but I am not her.
I also would love to cut my expenses down even further by Couchsurfing, working from random chairs and sofas, and eating rice and noodles every day. I could also wear cargo pants every day, wash my clothes in the sink, and shower with cold buckets of water. But, as much as I’d like the extra cash this would afford my business, I simply cannot be the radically indestructible vagabond. It’s just not me.
Truth be told, the wealthy explorer has a leg up if he decides to build an internet business. With no need to flat-line expenses, he can enjoy a great quality of life no matter where he goes, and he can inject much needed capital directly into his business. Since he has already been financially successful, he need not concern himself so much with having a low monthly burn. The bad things is, most bootstrapping, laptop-entrepreneur types are not in this position, so they probably find themselves in a different category than the wealthy explorer.
So, it should be no surprise then, that I’ve settled myself along the lines of a sensible yet lively bootstrapper.
This means I am choosing countries to live in that are cheap (like Colombia), but might not be the ultra-cheapest (Myanmar? Bolivia? The Congo?). It means I live in a major city (Medellin), not some far-off place in the jungle. It means I sometimes cook at home, but I very often eat out because it is not that expensive (relatively). It means I definitely don’t go to the most expensive clubs on the weekend, but I definitely do go out and have a good time most weekends. It means I don’t have the fastest internet, but I do make sure to have fast internet. It means I don’t live in the most upscale part of town, but I don’t live in the shady part of town either.
In short, the sensible bootstrapper realizes that a certain standard of living and activities is required to keep him happy. As a result, he doesn’t fret or worry about spending extra money, but he doesn’t spend money on needless extras for his life. He doesn’t want to live in the most crime-ridden, or god-forsaken parts of the world just to save a few extra dollars per month, but saving money is still a very important consideration in his travels. If he chooses a relatively dangerous country, he most likely stays away from regions where most of the crime occurs.
In short, he engages in intelligent lifestyle design, given his phase of life where he is attempting to build an online business.
So, one question you might be wondering is the very practical one: how much does this ‘sensible yet lively’ lifestyle cost?
Well, from my experience, the number for that is somewhere between $1000 and $1400 per month for a single guy or gal. This includes all your living expenses like rent, food, and internet, as well as gym membership, transportation, and the nightlife excursions on the weekends. Again, a lower monthly burn than this is definitely possible, but for that you probably would be bending towards being a more ‘homely’ or ‘radical’ lifestyle designer.
Now, you can accomplish this lifestyle in different places of the world… I personally enjoying every day I get to be here in Medellin, Colombia. But you can also do it in places in Asia like the Philippines, Thailand, and Indonesia, or in other places in Latin America like Peru, Mexico, and the Dominican Republic, or in cutting-edge destinations like Ethiopia.
The first step in all this, of course, is to build your runway… get yourself the cash to afford a year (or more) of this lifestyle by reducing your expenses and saving money.
Then just hop on a plane and the adventure begins.