Living Overseas and the Reality of Currency Arbitrage — Part II
*Part I of this story is here.
At the end of Part I, we discussed how exchange rates and inflation can affect the price of large financial commitments.
That, however, is just one of the downsides of living overseas on the cheap.
Another problem you’ll have to deal with is moving money from your home bank account to the country you’re living in.
Money Transfers
Before 2018 or so, this was a nightmare.
Mainly because the only way to move large amounts of money from one country to another was through an international wire transfer, or service like Western Union (which charges insane fees).
Sadly, it’s near impossible to send an international wire transfer unless you go to an international bank branch in a major city (usually the capital of the country you’re in).
However, if you end up living in a more remote area, you can forget about banking transfers.
Now, sometime around 2018, TransferWise (now known as Wise) came onto the scene and was an absolute Godsend for expats.
Mainly because they allow you to transfer money from your home bank to your local bank (including converting it into your local currency).
On top of that, their fees are very low (I pay about 1.5% on average per transfer). And usually, the transfers hit your local bank on the same business day (or at worst, the next).
With that said, dealing with them can still be a hassle.
First, transferring money between two banks assumes you actually have a bank account in the country you’re living in.
Depending on your residency status, what kind of visa you’re using to stay in the country, etc., getting a local account may or may not be possible.
Second, you get the lowest fees on Wise when making ACH transfers (direct debits from your checking account).
Unfortunately, ACH debits can take multiple days to hit your checking account. Further, because they’re dependent on banks, they don’t process on weekends or national banking holidays.
Because of that, Wise has strict rules about sending more than one ACH transfer per week.
(Given someone could easily cheat their system by sending a ton of ACH transfers they don’t actually the money to pay for.)
As a result, trying to make multiple transfers per week is near impossible using the low-fee ACH method (unless you’re willing to wait 5–7 business days for the second transfer to hit your account).
Admittedly, you can send as many debit card transfers as you want (given Wise gets the money right away).
However, the fees for doing so are about 2% higher than sending money via ACH (the credit card fees are so high I’ve never even bothered).
Interest Rates
The third downside (or upside depending on your situation) is the country’s interest rates.
In the US, banks almost zero interest on savings accounts (it’s like 0.0025% or something).
Here in Brazil, however, I earn 10% on my savings (which is amazing).
The problem?
First, that 10% barely keeps up with inflation.
But second and more important, it means interest rates to borrow are dramatically higher than they are in most Western countries.
In the US, the average auto loan comes out to about 4.4% per year.
In Brazil, I’d have to pay 1.9% per MONTH (which compounds to a stunning 25% per year).
Same goes for financing a home.
In the US, the average mortgage rate on a 30-year fixed loan is 4.29% (as of this writing).
Here in Brazil, however, you’re looking at 9.5% per year.
With the American 30-year loan, you end up paying 350% of the value of you borrowed (assuming you finance 100%).
But at 9.5% per year over 30 years, you’d end up paying 1,500% — 15x — the amount you borrowed.
You don’t have to be a math genius to understand that is a HORRIBLE investment.
Because of that, in countries with high interest rates, most foreigners who want to buy a home try to save up and buy in cash.
Sadly, this could take years (if not decades) depending on your financial situation.
With that said, I have heard of people getting low interest rates loans in their home country then using that loan to purchase foreign property.
No Credit History or Proof of Income
A fourth downside to living overseas on the cheap is not having any credit history, or proof of income in the local currency.
If you pay for everything in cash, this won’t be an issue.
However, if you want to finance a car, home, or get a credit card, this can be an issue.
Mainly because, even if you have a pristine credit report at home, the country you’re living in has no way of verifying:
- If the information in your credit report is accurate
- Whether your home country has a reliable system for measuring someone’s credit worthiness in the first place
With that said, there’s an unspoken assumption gringoes living overseas have money. And relative to the local population, that’s usually a safe assumption.
Because of that, bank employees and realtors will usually accept your tax returns as proof of income.
Further, you probably won’t need to prove your income unless you’re making a large purchase (like a home or apartment).
Not Everything is Cheaper Overseas
The final “downside” (if you even want to call it that) relates to the reality of expenses overseas.
In particular, understanding that just because most stuff is cheaper overseas, does not mean literally everything is cheaper.
For most households, their three largest outflows each month are housing, transportation and food.*
*In the US, which has the highest healthcare costs in the world, healthcare can also be a large expense (depending on your age and health of course).
So, when researching a country, these are the four areas you want to focus on.
As an example, rent in certain Central and South American countries can be much cheaper than in the US. However, electricity costs can also be higher.
Meaning, if you live where it’s hot and have the AC running 24/7, what you save in housing can be partially (or fully) negated by a higher electric bill.
Same goes for auto / transportation.
Here in Brazil cars and auto insurance are slightly cheaper than in the US. However, petrol is more expensive.
Meaning, if you have to commute, your total auto expenses may end up higher than what you currently spend.
Last, the US has very favorable import taxes. Many foreign countries, however, do not.
As an example, electronics in places like Thailand or Brazil can be 50–80% more expensive than what you’d pay at home.
Same goes for imported cars (and car parts), foreign made appliances, etc.
Meaning, if you’re a gadget head, race motorcycles, etc., be prepared to spend close to double what you spend at home.*
*Most everyone I know stocks up on gadgets when they go home to visit family. However, if you need large car / motorcycle parts, this won’t be an option.
Conclusion
So, there you have it folks.
Playing the currency arbitrage game has been one of the best decisions I’ve ever made.
As an American who was looking for an affordable surf town in a tropical climate, there just weren’t any cities in the US that came close to meeting my criteria.*
*Hawaii came close, however as one of the most expensive areas in the US, it failed the “affordable” criteria big time.
And while Costa Rica, Bali and Ecuador also came close, they still didn’t meet my criteria as perfectly as I would have liked.
With every move, however, I got a better sense of exactly what I was looking for.
And sure enough, after extensive research, I did in fact find my happy spot.
It wasn’t easy.
And should you go down this path, I guarantee you’ll have to deal with some maddening hassles.
In the long run, however, it’s been more than worth it.
Emotionally. Mentally. Spiritually.
And yes, financially as well.
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