What is geographic arbitrage, and how can you use it to improve your finances?

Several years ago, my husband got a job offer that pulled us out of our home in the suburbs of New York City and dropped us into a suburb of Atlanta. He wanted the job, and my freelance writing could be done remotely. Plus, our kids hadn’t yet entered elementary school. Nothing was holding us back.

Was I thrilled about moving 750 miles south to a place where I knew no one? Not really. Did I want to tear myself away from the ineffable coolness that is New York City, and leave my family behind as well? That would also be no. But there was one factor about the move that I loved: the new house. It was a stately brick four-bedroom with a two-car garage in a leafy neighborhood with a pool!

The cost of living is just lower in the South. We moved into a home that would have cost three times as much in our old town. The property taxes, too, were much lower in Atlanta. Our money went further here, and that led to a higher quality of life. Eventually, my parents retired and followed us, selling their New Jersey home and upgrading to a much nicer one near us in this warmer climate.

We’d stumbled into a financial strategy that many people these days are intentionally putting in place. It’s called geographic arbitrage.

What’s Geographic Arbitrage?

Geographic arbitrage, or geoarbitrage, was a term coined by the FIRE movement (Financial Independence, Retire Early) to describe a strategy for achieving certain income goals, whether you’re a doctor or a gig worker.

Basically, it means capitalizing on a lower cost of living in a different area of the country (or anywhere in the world) to make your income go further.

The basic idea is that you turn where you live into a variable so you can take advantage of different standards of living or even weaker currencies, if you’re moving out of the country. It isn’t for everyone.

My sister lives in San Diego, a lovely city with beaches and perfect weather — and a median house price of $833,500. If she and her husband were willing to move 550 miles northeast to Reno, Nevada, they could buy a house in a market where the median price is $494,500. Simply by moving from one city to another, they would cut their mortgage in half. And they’d have lots of extra income to spend or save for retirement!

Of course, the obvious drawback is … leaving San Diego. I’m going to assume I don’t have to name the obvious and myriad benefits she’d have to give up. (Suffice it to say, she’s not going anywhere!)

But for many people, the benefits of relocating to an area with a lower cost of living can far outweigh the downsides. In fact, more people than ever before are harnessing the potential of geographic arbitrage.

MORE: Thinking about moving? Most tax-friendly states seeing largest population gains

Why Now?

Not too long ago, moving to a different city was out of the question. In general, you lived within commuting distance of your office. How far from that central target was up to you, but the further afield you lived, the longer the commute.

But in the wake of the COVID-19 pandemic and an increasingly common move to remote work situations, many now have the option to be “digital nomads” — doing their part from anywhere they can get a Wi-Fi connection.

Forbes Advisor says that as of this year, 12.7% of full-time employees work from home — and by 2025, that number is expected to rise to 22% of the workforce, or 32.6 million Americans. This indicates that the trend that started during the pandemic has become a major cultural shift and is making it more possible for people to take advantage of geographic arbitrage.

And if you want to quickly pay off a student loan, travel more or retire early, moving to an area with a lower cost of living could be a great way to do it.

Of course, you don’t need to be a digital nomad to take advantage of this financial strategy. Many non-remote professions are in demand and growing across the world, from nurses and teachers to administrators and blue-collar workers.

How to Use Geographic Arbitrage to Boost Your Bottom Line

If you’d like to consider this strategy, there are several factors to keep in mind. To start with, you’ll have to figure out how geoarbitrage fits into your personal lifestyle.

Know your financial goals and your philosophy regarding the building of wealth, so you can incorporate that into your next move. You may want to instill a sense of discipline into your budget habits before you put a plan into action, since moving isn’t going to instantly change your money management habits.

Then get the initial questions out of the way. Make sure that your current employer is 100% on board with you moving to another state (or country), or start searching for a new job that will allow for remote work and lock it down first.

Figure out what the options are for you and your family in terms of moving. What cities, states or countries would suit you? Housing, utilities, transportation and everyday costs (like entertainment and groceries) can offer considerable savings depending on your location, so take these variables into account.

Don’t forget to consider taxes. Some states don’t require you to pay income tax, for example. On the other hand, some have higher tax burdens, so incorporate that into your calculations.

Then there are many factors — beyond housing and utilities —that go into your cost of living. Consider the various expenses you’re currently paying. Know the gap between your expenses and your income, and practice due diligence to make sure this move will ease it.

Will you be spending more on visits home to family? Will your childcare costs go up or down? Does this new area have higher sales tax? Sites like Best Places can help you compare living costs between two cities. Make sure that the move really will pay off before taking the leap.

For a lot of people, moving hundreds or even thousands of miles away is just too daunting, even if you can have a house right on the ocean for less than you’re paying now to get a view of the concrete jungle. But geographic arbitrage doesn’t have to mean a big move. Take a look around you. There might be a significantly cheaper place to live that’s less than an hour away!

Just realize this isn’t a one-size-fits-all situation, so figure out what’s right for you and go from there.