When it Makes Sense to Commute by Plane

True story. I was in Vietnam a few weeks ago and on a street food tour of Hanoi, I met an Australian expat. She was a lively conversationalist and told me the nugget of a story: there are Australian resource workers who choose to live in Bali and commute to Perth to work in the mines.

It’s true (the internet proves it so!) and it makes total sense for those involved.

  1. They get to live in paradise, or at least a place that most people pay thousands to travel to
  2. The flight is cheap (Google Flights shows direct round trip tickets to be $180 if you book a month out)
  3. At 3 hours and 40 minutes, the flight is doable given that the work schedule was described to me as 5 on 5 off
  4. Cost of living is lower in Bali than in Perth
  5. Living expenses are covered at the worksite in Western Australia, which avoids the unpleasant need to maintain two residences
  6. Enough people do it that the visa/residence aspect in Bali must not be a problem

Calculating that the cost of a flight 2-3 times per month is still less than the difference in rent between Denpasar and Perth, the miner comes out way ahead. Of course, this works best if you’re single, mobile, and without significant family attachments to keep you in Australia. But if you are single or can otherwise make this work by moving your spouse to Bali, it can work out really well.

Can this type of arbitrage be applied to other situations in life? Of course! In fact, the cost of housing in most major American cities has become so exorbitant (see $3500 per month rent in SF for a one bedroom apartment) that it’s cheaper to commute to work, even on a business class flight! It’s true. I’ve been investigating this for my own professional life and came up with one such arrangement.

  1. Live in Tokyo, where the monthly rent is about $1200 in the city itself, even cheaper if you live in the suburbs
  2. Catch a direct flight to a west coast city in the US for a job as a locums nocturnist (bonus if the job is in Washington state where there is no state income tax)
  3. Work 7-10 days straight and then take the rest of the month off

Mind you, the living expenses stateside are of course all covered by virtue of being locums, absolving the nocturnist of maintaining a costly car and pied-a-terre in the city. There is a secondary bonus. Normally night shift workers are paid a premium in the US, due to the unsociable hours. However, Japan is far enough away from the US such that accounting for time zone difference, our nocturnist will be working a daytime schedule back home! By keeping the number of contiguous shifts high and the number of trips back and forth low, our nocturnist gets to maximize his # of days off, pay per shift, and minimize overhead expenses (time, money) involved in the commute. With a round trip ticket from Tokyo to Seattle about $850, rent in the US will just need to be more than $2000 per month for this commute to be worthwhile. That’s not even accounting for how much cheaper and better life is in Japan compared to the US.

Of course, one can think of similar arrangements for a British locums physician seeking to live in SE Asia and commute to the UK to work night shifts on an as needed basis.


Unfair Comparisons on Cost of Living

I’m livid after reading Marketwatch’s recent article on cost of living differences, in which it tries to make a blanket comparison between Asian cities and American/European ones.

The key part is in how they designed the study:

The study rated the cities according to how expensive it is to buy basic items there at supermarkets, mid-priced stores and specialty outlets, using the price of food, drinks, clothing, recreation and entertainment and the cost of buying and running a car (including the cost of gasoline).

It also includes recurring expenses, including the cost of renting a home, utility bills, private schools and domestic help.

I understand why they’re doing this – to create an apples to apples comparison. However, there’s a reason the government changed the index of inflation to account for substitutions. Essentially, to have the same or better lifestyle in an Asian city vs an American one, you can go without certain things. The cost of owning and operating a car in Tokyo, Singapore, or Hong Kong is exorbitant because of incentives/taxes against congestion. Plus you don’t need a car to get around anywhere. It’s actually probably faster to take the metro/subway to avoid the surface congestion. Whereas in an American city you absolutely need a car to live.

Another aspect is private schools. I understand why they’d want to keep that in the comparison – the article is geared at high powered corporate expats who want to replicate a western lifestyle in Asia (note that they include domestic help in the calculations). However, again in the US you need to send your kids to a private school to get any kind of decent education. Not so in Asia. There, the locals hardly ever do so because public schools are so good (extremely competitive by world standards). This is anther example of a cost that’s not experienced evenly between Asia and America.

Finally, I’m not sure how they calculate food, but in my experience food in Japan (assuming you eat Japanese style meals) is much cheaper, tastier, and of better quality than the equivalent American ones. Restaurants are also cheaper, mostly due to not having to pay tip.

My gripes about this article are similar to my wife’s experience moving back to the US from Asia.


Can You Avoid Paying Income Tax?

Elon Musk is depressed from overwork, just like many American his age. This is why your life goal should be to strive for full financial freedom by creating enough income streams such that your needs are fully met without you having to devote your time to it.

If you’ve read my book, you’ll know that I’ve identified being a digital nomad operating your own online business as one of the best ways to achieve that end. While I was pondering this, I wondered if there was a loophole in the system, a backdoor lifehack to circumvent existing laws regarding residence, territoriality, and taxation. That is, can you avoid paying all income tax completely?

As it turns out, others have wondered the same thing. Basically, most countries will not tax you if you haven’t lived in that country for a certain amount of time to qualify for residence. Usually it’s something close to  less than half of the calendar year. By staying below that level,  you avoid being considered a tax resident of that country. The US is a little different, being one of only two countries (along with Eritrea) to tax you on worldwide income regardless of residence, though it does give a foreign earned income exclusion.

The loophole is due to laws regarding residence and taxation that have not yet caught up with modern innovations in travel, communication, and technology. Before with income tied to jobs which were tied to location, countries can get their share of tax from your employer or from you based on your residence (if you operated a small business, for instance). However, now we have online web businesses that we can run from anywhere in the world. If governments can’t tax us at the source of production (because the business is “based” in a tax haven) or by residence (due to the digital nomad being constantly on the roam, never staying long enough in any country to gain residence), we’re free from all income tax.

As an example, let’s take a British citizen who wants to start a web business offering cultural sensitivity consulting to large established companies. This adventurous individual incorporates in Bermuda or the Cayman Islands, and then proceeds to travel the world, never staying long enough in any single place to owe taxes. This is made easy with visa free access to many of the world’s most fun destinations, and eventually our nomad settles on a regular cycle of Ireland -> Thailand -> Singapore -> Australia -> Panama -> Ireland. Meanwhile, all the web income generated from work done remotely is not subject to tax in any of the countries visited, since the corporate income is categorized as earned in the tax haven.

Let’s celebrate this with a Joan Baez song glorifying the joy of avoiding taxes:



Get Out of a High Cost Area

You probably know that coastal cities are expensive. Actually, if  you’re reading this blog, chances are better than not you’re an educated person living in an urban area. It’s also not surprising that the high cost of living serves as a wall that prevents the migration of poor workers from e.g. Ohio or West Virginia. Interstate mobility in the US has decreased, and part of that can undoubtedly be explained by pull (family ties) and push (cost of living) factors. This has contributed to political polarization, overall wage stagnation, class-based segregation, and increased resentment all over the board.

The key tenet in my book is that wages are not going up, at least not as fast as cost of living. This article makes it abundantly clear that it’s driven by housing:

Housing costs have grown much faster in high-income places than low-income ones since 1960. Housing has always been more expensive in high-income places, but the difference is getting more extreme. In 1960, on average, US states with 10% higher incomes had housing costs that were 10% higher. In 2010, states with 10% higher incomes had 20% higher housing costs.

I would also add labour to that mix. As part of overall price pressures, you have to pay more for help, since they need to be able to afford to live there or otherwise be compensated for a long commute in from the exurbs.

So if you’re living in an expensive city, carefully examine your own life and entertain the notion that you may have more disposable net income after moving to the sticks. (Note: this doesn’t factor in the potential for career advancement and networking opportunities in the big city)

Better yet, take advantage of geographic arbitrage using techniques from my book.


Link Roundup: The Value of Hard Work

During times of plenty, when there are more interesting articles than I can do a feature review of, I will combine them into a single post called a link roundup. Here is one such event.

  1. The value of hard work. This reminds me of my time growing up in the crucible of competitiveness that is the Bay Area. Investments made in oneself through education and knowledge pays compound interest down the road, establishing a solid foundation for improved performance and confidence, that feed off each other in a virtuous cycle. Take for example a high school student taking summer classes to prepare for the next quarter’s math and reading classes. That person will get a leg up in results for the rest of his or her life, because of repeated exposure and increased familiarity, not to mention having an easier time in the class. Compared to someone like this, if you’re not working hard every day, you’re falling behind your peers. Just like in athletics, average is over. Every day you’re slacking or doing something else is a day falling behind your peer competitors.
  2. What do future jobs look like? The thinkers of yesterday and today have a vision for how the future looks, and it doesn’t bode well for some. Unskilled work will be replaced by robots. Technical and computer skills will become more valuable. Good future areas to specialize in include AI, robotics, and VR. At the same time, some jobs like in health care that deal with human emotions, where empathy is essential, will be relatively shielded from the effects of technology. But then again, you would know this from reading my book.
  3. As a corollary to the above, university students increasingly recognize the reality of a tough job market for graduates, and are tailoring their studies accordingly. This means fewer liberal arts graduates and more social science, business, engineering, and “trades” graduates. That’s probably a good thing for individual finances but a tragic loss for the country. After all, from their pen would have come art, literature, and poetry – the stuff that gives colour and meaning to life. That’s what separates us from somewhere like Singapore or India, which are
  4. If you have truly niche technical skills, you can make bank. Just look at blockchain developers. Btw, software is one of the fields where if you have the interest and the talent, you can teach yourself and get a great job without having a degree in the field. That’s the path my dad took.
  5. Here’s a great story of a self made web entrepreneur with the vision to establish a business reselling cheap Chinese toys from Alibaba to American consumers willing to pay more. Wait… why don’t Americans just buy directly from Alibaba? Doesn’t sound like a very sustainable business model but somehow it works.
  6. Concierge medicine is taking off, and whispers are that you can have a lucrative practice with low patient volume, if you cater to the rich and treat everyone like a VIP. It’s not my cup of tea, but I see disruptive potential in different delivery methods for health services. Target mini clinics are good, as is the underutilized format of telemedicine.
  7. I can’t harp on the concept of geographic arbitrage enough. By moving to a cheaper location, your dollars stretch so much further. Not only that, but your kids can grow up multicultural with foreign language skills, interesting life experiences, and a great prebuilt application essay for Ivy League schools telling them how unique you are.

Luxury Is Cheaper than Land

Of all the innovative uses for geographic arbitrage, one of the most satisfying is monetizing one’s home and trading it for an itinerant life. That wanderlust can be satisfied in a variety of different ways. The online travel blogging community has made being a digital nomad in cheap areas like SE Asia and Latin America so commonplace that it’s become trite.

An interesting choice is to instead live on a cruise ship. It’s not just a way of life for the wealthy to live on a luxury boat like The World, but even worldwide voyages with one of the mass market lines (Princess, HAL, Oceania, etc) can be affordable, when considering all the expenses racked up on land in an expensive place like New York City.

At a certain point, if you own property in NYC and decide to rent it out, it may be able to generate enough income to subsidize all (or a great portion) of the cost of the cruise. And when you factor in food, entertainment, and travel all being bundled into the price of the cruise, it becomes an even better bargain.

Of course, this type of lifestyle is not appropriate for everyone. Not everyone likes life on a ship, whether due to claustrophobia, seasickness, or boredom. But it’s worthwhile knowing about the options to enhance life that others have found worthwhile and workable.


Secrets of Wealthy Millennials

Is it just me or does Business Insider seem to be sliding into a paparazzi version of the staid Forbes magazine? The articles being published these days seem more like a weird hybrid of Moneyish and Gawker, with more sensationalist titles than the Daily Mail and plastered with more inline Instagram posts than TMZ.

Still, despite the descent into frivolity, there are some nuggets of truth and wisdom to be gleaned from their latest series on wealthy millennials.

The first story from BI is that of Ebony Horton. To summarize, she was a newly minted graduate making $38,000 a year in DC. She then went back to get an MBA and racked up a total of $220,000 in loans from undergrad + MBA. She freaked out at the amount, and came up with a plan to pay it all off by moving back to rural Illinois, lowering her cost of living, saving like crazy alongside her husband, buying rental property, and getting some opportune gifts from her family. Now 31, she’s debt free and ready to share her story in a book and go on the speaker circuit to make boatloads of money.

What can we take away from this?

  1. It helps to have rich parents who can support you, either directly financially or indirectly by providing free/subsidized shelter
  2. Being dual income (however miserly), no kids dramatically accelerates your savings trajectory
  3. If you set your mind to it, saving 75%-95% of after-tax income is possible
  4. Control lifestyle inflation (let your standard of living appreciate slowly) or it will ruin you
  5. Investing in the property market uses leverage to enhance the growth rate of your wealth

One of the topics in my book on finance is that in the modern age, there are a few viable paths to success. However, this book focused purely on wealth and its accumulation, the pursuit of which is unsustainable in the long term. One of my upcoming books will instead deep dive into the human mind and explore how we become happy. With that in mind, when thinking of work-life balance, there are two ways to go about it. One is to “finish” a high-paying career, accumulate boatloads of savings, and retire early. In short, this abbreviates the traditional working time and prolongs retirement. It can be very effective, as legions of FIRE (financial independence, retire early) adherents can attest. However, it requires significant discipline to accumulate that much savings so quickly.

The next BI story is that of two 30 year old teachers who managed to save $1 million after 8 years, and are now retired and travel the world. Isn’t that the dream of every young millennial these days? They did it by doing much of the same that Ebony did, only they had the advantage of minimal education debt. Their lucky break was to pick up houses in Las Vegas on the cheap in the depths of the real estate collapse, converting them to rentals. Gradually, the market bounced back and they were able to make more rental profit from the houses, which they used to buy yet more houses. Now they make $10000 per month on average from rent, balanced out against only $2000 per month in mortgage, letting them retire to pursue their passions.

The take away bullet points?

  1. Paying down debt is good, but it’s a lot better to not have debt and to divert savings into investment vehicles
  2. Being lucky (getting into real estate at the bottom, even before hedge funds) is better than being good
  3. Sometimes living in a lower cost of living area beats moving to a high cost area (Bay Area, London) to earn a high salary
  4. Buy a property and rent it out to others, letting them cover the cost of the mortgage (see my analysis of yield on equity here)

The other reasonable approach is to maintain the frugality but to intermix one’s working years with “fun” activities traditionally associated with retirement. This can come from working on cruise lines, at vacation resorts, as an English teacher abroad, etc (more examples of ways to do this are in my book). These jobs may not be high paying, but the cost of living is either low or completely subsidized such that significant savings are possible. Experiencing fun stuff as a tourist is expensive, because you duplicate costs such as housing by having to pay for a hotel and the mortgage back home, and other costs are more expensive (such as having to eat out every day). It’s a lot easier to see the same sights and go to events as a local, relying on cheaper longer term housing, cheaper grocery options, and public transportation.

On this point, BI ran not one but two (oh my how they like to recycle stories) articles about the same girl – Nina Ragusa. She took the fun road, working hard initially in multiple jobs to save up enough money to launch her career as a travel blogger. She gets to roam the world, doing the typical things on the well-trod road of teaching English in Thailand and working in the tourism sector in Australia (the working holiday visa for young people is a great boon). In essence, instead of slaving away at a desk job, she gets to live in vacation paradises, work freelance in a bunch of industries that aren’t that intense, and save a bit to boot. There are two possibilities for how she will end up. If she does well with her travel blog, she can spin that into a brand and partner with tour agencies as a promoter. The worst case scenario is that she returns to the US at some point having had a decade of amazing experiences and a small amount of savings.

You may wonder how young people can spend so much time and money on travel and not exhaust all their income or savings. For one, cost of living is so much lower for most places outside of the US, and low end wages (especially for the service sector in Australia, NZ) can be higher. Finally, many fun activities aren’t that costly. By working at a resort, you’re afforded the privilege of taking the kayak or surfboard out when you aren’t leading a tour, and sometimes can even use the company’s van for personal excursions. In a tropical paradise, many of the most fun activities are free. It’s so easy to get sucked into complacency living in these places.

Take home points for this case:

  1. For young people who want to have fun now and mix in a bit of the retired life with their youth, it’s hard to beat adventure travel and freelance work
  2. Geographic arbitrage wins again
  3. There’s an outside shot that you can create a sustainable brand/blog based around travel and never have to work again

Broke at Half A Million

Marketwatch ran an article about how one can still be broke despite earning half a million a year. Preposterous, you say? They do show the breakdown of sample spending for the rich family compared to an average family with $80,000 in yearly income.

Let’s break this down in an itemized manner:

  1. 401k contributions: a good thing, especially given the tax bracket
  2. Taxes: unavoidable, but the rich family should be looking to diversify more into legal tax shelters like mortgage interest deductions and maximizing HSAs
  3. Child care: I can’t explain this discrepancy. Does the wealthy family choose to use a premium service as opposed to the McDonalds of child care? Does that really provide any benefit? Both families have the same number of kids, so there’s no reason for spending to be any different. And besides, those in the know opt for live in Hispanic au-pairs so their kids can get a head start in life
  4. Food: both families eat way too much. I spend $40 per week on groceries (that includes household items like detergent) for myself. Multiply that by 4 gives you $8480 for a whole year. Even if you spend a bit more on eating out, you will still may just top out at what the average family spends. What does the rich family get by spending more? More calories? Whole grain organic quinoa?
  5. Housing: this is a big opportunity to cut back by living in a smaller house for less. A bigger house just adds to the housework, not necessarily truly improving happiness. Likewise, this allows for a corresponding reduction in property tax and insurance
  6. Gas: no reason that this needs to be different between the two families
  7. Life insurance: just self-insure by saving more. This is one of the biggest cons out there
  8. Clothes: do you really need to wear better clothes than the average family? If anything, standing out more in this era of Occupy Wall Street just makes you more of a target
  9. Children’s lessons: I’ll admit, probably a good investment. If anything, Asian families in the Bay Area spend much more in this category
  10. Charity: cut back on this, especially if you’re living on the edge
  11. Debt repayment: probably unavoidable, but you can save on this by studying overseas or in state schools
  12. Miscellaneous: I don’t even know what this means

Notice how I didn’t include vacations on this list? Generally, I will allow one budget busting “splurge”, either in clothing, house, car, or vacations. Among those, the one that gives the most lasting happiness is vacations.



Priced Out of Housing

While I recently published a post on housing, that was a more general look at the concept of holding a mortgage in the first place. This post will be more on the specifics of housing conditions in urban centers throughout the US. Namely, things have gotten increasingly unaffordable for middle class people in desirable cities.

Take this article, for example:

The median home value in San Francisco now stands at $765,700 – 10 times the city’s median household income, according to the census. As of March, the median rent for a one-bedroom apartment was $3,590 a month. With the median income in the city being $78,400 a year, this means the average household can end up spending as much as half its earnings on housing.

It’s gotten to the point where the city core will be filled with the wealthy, while the ordinary workers, teachers, nurses, and police officers have to commute in from miles away. That takes an incredible toll, both physically and financially.

Will things continue to trend this way? Central London has shown us that prices can remain out of reach for decades, if not generations, when houses become used as investment assets for the global wealthy rather than as places to live. Central banks by lowering interest rates drives hot money chasing returns into real estate. While mortages are lower, houses are not any more affordable given how much prices have risen.

New construction isn’t going to come galloping in like a white knight to rescue us. For one, since the last crash construction has shut down and is only starting to slowly return now, but not nearly at the pace needed to keep up with new household formation.

Currently, things maintain themselves at an equilibrium, albeit stretched at near breaking point. Ordinary adult workers shack up two or three to a house in order to live in the city.

What’s the solution? Cities have to look at becoming denser with better utilization of space, overriding objections of the NIMBY anti-density crowd. Simply raising wages without increasing construction won’t work – there will be more money chasing the same tight supply, which will result in even higher prices.

There are some nifty things that governments can do to alleviate the shortage by discouraging investors from buying and removing housing stock from the rental pool. This is more of a problem in the UK, where property taxes are low, as compared to the US, where it would be costly for a foreign magnate to let too many houses sit empty.

But these are all things out of our control that may or may not end up happening. What we can do as individuals is to vote with our feet and move to places that are still affordable, such as Salt Lake City, Dallas, and Atlanta. Envisioning life outside of the country can work as well, especially for those who have read my book on wealth and are interested in a mobile freelance life.


Voting With Your Feet

In time for tax season, many of us are probably grumbling about how much tax we have to pay. Sure, the headline rates for the US may not seem all that impressive, but when you add up state, local, payroll, and federal tax all together, the marginal rate can be in excess of 50%! That’s higher than the top rate in the UK. On top of that, we don’t even get free health care, efficient public transportation, or cheap schooling. Think of having to pay out of pocket for those mandatory things as an extra tax on the little guy.

Could it be then that the US is the most heavily taxed country in the world? Something to think about for sure.

One example from recent times is the St. Louis Rams moving from St. Louis to Los Angeles. While some employees will enjoy the weather, others may bemoan the pay cut that they’ve just received from the change in state tax systems. That’s not to mention the higher cost of living in California. Strangely enough, so many people try to live and work in California (high supply), compared to the cold and dreary Midwest, that salaries for comparable professions are higher in the Midwest even before cost of living adjustments.

It’s no surprise then that I’m planning to leave California as soon as I am able.

In any case, while we could stay and try to fight the man through lobbying or voting, it’s hard for a single person to make a difference. That’s where we can vote with our feet. Just like Tiger Woods did and what Phil Mickelson pondered about doing, we can leave high tax locales and move to low (or no) tax ones. The name of this game is geographic arbitrage, which I go into detail in my book on wealth.