Reader Story: Geographic Arbitrage in Real Life

This guest post from Alice is part of the “reader stories” feature at Get Rich Slowly. Some stories contain general advice; others are examples of how a GRS reader achieved financial success — or failure. These stories feature folks from all levels of financial maturity and with all sorts of incomes.

Over the years on GRS, I’ve encountered a number of articles on the benefits of geographic arbitrage, which basically means making your money in a place with higher salaries and spending the money in a place with lower costs. Living in developing countries while you’ve made (or are still making) money in places like the United States or United Kingdom is a great example of this. And this is certainly a valid strategy for making your money go farther. But for a variety of reasons this system doesn’t work for a lot of people.

I’ve always lived and worked in the U.S., and that isn’t likely to change. But I’ve still been able to make geographic arbitrage work for me. I want to share how the average person can take advantage of this concept without having to travel the world.

The United States is a diverse country, and this includes diversity in pricing. The variation in the price of real estate in different areas is the example that most people are familiar with, but price diversity shows up in all kinds of things, including items that are much more transportable than real estate.

You can save money by traveling to a place where a given item is cheaper to buy, but time and travel costs need to be considered which may negate any savings. But because I travel regularly, usually by car, to visit family members (mine and spouse’s), I’m able to take advantage of pricing differences between my home area and theirs.

Though it may sound like it, I’m not exploiting overall cost of living differences in the sense that it’s generally cheaper to live in Tennessee than in California. This is an item-specific phenomenon, so it works for me when I visit family members, and it works for them (on different items) when they visit me. Below are some examples of how this has helped me save money.

A few years ago, when our early-nineties Ford was dying, and we had determined what we wanted to replace it with, we started shopping for a newer car. Via the magic of the internet, I quickly discovered that there were vast differences in the pricing between where I lived at the time and other locales that I traveled to. This applied to the specific car we were searching for; this wasn’t a function of the overall auto market.

I continued to watch pricing and availability in our home area, but also searched for our future car at locations along our route and at our destination whenever we traveled. After several months of searching, we located a car that met our requirements when we were visiting my spouse’s family. We saved nearly 25% off the cost compared to same car in our area. The small additional cost of driving the new-to-us car back home was more than offset by thousands of dollars in savings on the purchase price. A couple of years later, when we replaced our other car, we followed a similar approach and netted about a 10% savings, so the potential savings of this strategy can be variable.

Buying cars this way was definitely a big win, but we don’t buy vehicles very often. I use a similar system for smaller everyday purchases. Because we’re mostly traveling to visit family, we aren’t really “on vacation”, and neither are they. Instead we participate in daily life, with things like helping with projects around the house, harvesting the apples, cooking meals, etc. This gives me an opportunity to get an idea of pricing in the areas where family members live.

Over the years, I’ve:

• Saved around 30% on staple foods like flour by buying when I was visiting my parents.
• Saved money on new tires by going to a garage near my folks’ place; I got new tires plus installation and balancing for less than the cost of just tires where I lived.
• Saved 80% on the cost of stone countertop remnants when visiting my in-laws.
• Saved on a variety of grocery items by checking grocery stores for things on my “pantry list”.
• Saved at least 50% on high-quality sandpaper when visiting my brother.
• Saved on many more small things that add up over time, and bigger things that I can’t remember at the moment.

This is an eclectic list, and many of the items are targets of opportunity. I don’t necessarily do all of these things on every visit to everyone. But knowing the prices of things I want to buy allows me to take advantage of good prices wherever I happen to be.

For more irregular purchases like things for upgrades to our house, I keep a general list of things we would like to do (if the cost can be made sufficiently low) and all the measurements and other relevant information in a notebook. This helps avoid buying things that don’t work out.

From reading Get Rich Slowly over the years, I’ve learned about a variety of savings options that aren’t available where I live, and so don’t apply to me. That’s okay. I just file them away and keep them in mind when I am in other places for some other reason. I recognize that the strategy discussed above won’t work for everyone; carrying groceries on a plane is probably not cost effective!

As always, do what works for you.

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This article is about Frugality, Money Hacks, Shopping