Our Financial Geographic Arbitrage Story in Numbers

This is our geographic arbitrage story. With full numbers. We first told our story to Business Insider who published it here.

It all started when…

Three years ago, Selenid and I moved from New York City to Buffalo, New York with our two young children (we now have three). We were in pursuit of geographic arbitrage. This is the idea that even with the same amount of money, you can have a better quality of life by moving to an area with a lower cost of living. 

In our case, we combined geographic arbitrage with an increased income. My wife and I had both landed jobs after training with greatly increased pay. Moving to Buffalo would get us much closer to having financial freedom. 

Now 3 years after starting our new jobs, our income numbers look like this:

My W2 salary as an employed physician is $470,000. My wife previously worked as a college professor making $80,000. She resigned and now does part-time consulting. She also runs our real estate investments full time, which generates around $150,000 a year. I also make about $100,000 annually from my blog.

Our geographic arbitrage story

In July 2020, I graduated after seven years of training in surgery and microsurgery. Meanwhile, Selenid graduated from her PhD program. For those seven years, we lived in NYC — Manhattan to be exact. 

According to Numbeo, NYC has the highest cost of living out of any city in North America, with a cost-of-living index of 100. Meanwhile, my hometown of Buffalo has a cost-of-living index of 71.18 — 47th place in North America and a cost-of-living decrease of 28.82%.

After a lot of introspection and consideration, we moved to Buffalo after both of us graduated. As a result of this move, we save on average $5,000 monthly.

These savings have come from a variety of areas

First, our income increased drastically as a result of the move 

After training, I considered multiple job opportunities and narrowed down to one in NYC and one in Buffalo. Most aspects of these dream job opportunities were very similar — academic practices associated with medical schools with a high focus on reconstructive surgery. 

However, one aspect was very different: the pre-tax gross income. As a result of taking the job in Buffalo, my gross salary was 163% of what it would have been in NYC. This translates to a monthly income increase of approximately $10,000. 

Since this is pre-tax, the take-home amount is less, so these income advantages from the move to Buffalo may not be considered traditional “savings.”

But we can also examine our actual traditional savings by comparing some of our expenses from our last year in NYC to our first year in Buffalo:

Two caveats: First, for simplicity, I’m not taking taxes into consideration since we’re in the same high-tax state but in a higher tax bracket now. We also no longer have to pay NYC taxes.

Second, I can’t directly compare the proportion of money invested in these two time periods since I had terrible financial habits as a trainee. I spent up to my paycheck and didn’t invest. So even if I only invested $1 this year, the increase would be infinity.

Comparing the expenses of our geographic arbitrage story

In NYC, we paid $3,350 per month for a two-bedroom apartment that I’ll generously say was 900 square feet

We paid 44.8% of our pre-tax income each month on housing. This apartment was “subsidized” by my training institution, so I basically just handed back half of every paycheck to them.

In Buffalo, we pay $3,031 a month for our mortgage on a four-bedroom house. If I include principal, interest, taxes, and insurance, we now pay 9.6% of our pre-tax monthly income on housing. Big difference.

But this isn’t a fair comparison — we save approximately $300 per month in this calculation, but it wouldn’t have been sustainable to stay in the same apartment over time. Our kids each got the bedrooms and my wife and I slept on an air mattress. 

In NYC, we would have had to eventually move to an apartment with four bedrooms to accommodate our growing family. 

Let’s be conservative based on estimates and say that monthly rent for an average four-bedroom apartment in New York City is $7,000. Now the housing savings from this move really come into focus and average $4,000 per month for us.

Our next biggest monthly expense is childcare 

In NYC, we paid $1,590 per month for our oldest son to go to daycare. This rate was also subsidized as it was the hospital daycare, so we spent 21.9% of our pre-tax income on childcare each month. This was just three days a week — average full-time daycare in NYC is conservatively $2,500 monthly. For our two kids who need childcare, that would come to $5,000 monthly. 

Currently in Buffalo, we do have our two older children in private school. The monthly expense is $3,000. That’s equal to 9.1% of our pre-tax income. Therefore, our savings in childcare is equal to $2,000 each month. So, with just housing and childcare alone, our monthly savings from the move is already $5,000.

Based on our monthly budgeting, my wife and I save about 45% of our gross income each month

That means that each month, we spend about $12,100. We’ve already accounted for $6,000 of this with housing and childcare. 

The rest of our average $6,100 monthly expenditures are laid out here. We already know that the cost-of-living index in NYC is almost 30% higher than in Buffalo. Therefore, we would expect our monthly expenditures on items like groceries, eating out, clothing, entertainment, insurance, taxes, and other monthly expenses to be around $3,500 higher if we were in NYC (28.82% x $6,100).

One of the biggest benefits of our move out of Manhattan has been the improved quality of life for our family

Many variables go into this but the bottom line is that geographic arbitrage has helped us to greatly improve our financial well-being and stability. Through saving and building healthy financial habits, we’ve put ourselves on a path to financial freedom where we can work and live on our own terms while spending more time with our children, family, and friends. 

Some examples of our improved quality of life include having more disposable income with a lower cost of living, and the ability to afford a larger home with more outdoor space after a very crowded living situation in NYC.

It’s also easier to do spontaneous activities with kids in Buffalo than in NYC — no cabs, just get in a car and go. There’s also less congestion at zoos and museums.

Finally, we’re now enjoying greater work satisfaction with improved compensation.

There are of course aspects about living in NYC that we miss

While Buffalo has plenty of kids’ attractions, nothing can compare with stepping outside and going to the Bronx Zoo, Museum of Natural History, or Central Park.

My wife and I miss the restaurants the most. But the great thing is that NYC is only a short flight or drive away from Buffalo, making trips to visit easy.

While we’ve not quite reached financial freedom yet, we’re significantly closer than if we hadn’t made the move

Right now, if we stopped working, we’d be able to cover our most basic expenses as you can see from this break down of our money flow. 

However, this isn’t our goal. We’d like to cover all basic expenses with the ability to also comfortably enjoy things like travel and experiences.

Being on this path and knowing we have a plan to reach it has improved our financial and overall well-being. It allows me to know I’m working because I want to, not because I have to. We’re happier doing things because we want to. 

It also gives us the ability to say “no” to more things. This gives us more time to spend on our own well-being as well as with our kids and loved ones. These benefits in our mind are even greater than the increased purchasing power we now experience. We focus our money on buying our time.

And I would say that is a happy ending (or maybe middle) for our geographic arbitrage story!

Meanwhile, here are some of my favorite recent posts!

• Debunking 7 Financial Myths Overheard in the Doctors’ Lounge
• Revisiting the 3 Most Tempting Current Investments to Avoid
• Net Worth and Wealth Are Different: Does It Matter?

What do you think? Do you have a geographic arbitrage story? If so, we’d love to hear about it in the comments below!