Digital Nomads are persons working remotely, either part-time or full-time, while moving or traveling. A digital nomad creates temporary offices in public libraries, coffee shops, hotel rooms, and Airbnb homes.
Meanwhile, geo-arbitrage is taking advantage of the difference in the cost of living between towns, cities, and countries. Timothy Ferriss popularized this concept in 2007 through his book, The 4-Hour Workweek, which has sold more than 1.4 million copies worldwide.
In the book, Ferriss explains that the cost of living in some countries can be as little as a quarter of that of others. Indeed, cost arbitrage is also found within countries since some cities and towns can be as much as 50% more expensive than others.
The history of digital nomadism and geo-arbitrage
Digital nomadism makes geo-arbitrage possible. It leverages the internet to achieve a state whereby the places you live and work are not necessarily the same.
The term “digital nomad” dates as far back as the 1990s. However, it gained popularity after the publication of Timothy Ferriss’ book in 2007 and the emergence of online freelancing marketplaces such as Elance and Odesk (now Upwork).
The phenomenon was spread further by the emergence of dedicated online communities such as the Nomad List in 2014–15. It was also complemented by coworking spaces that facilitated the flexibility of remote work.
Around the year 2000, digital nomadism was a more individualistic phenomenon. With time, IT companies began accepting remote work arrangements for their software developers and other personnel.
Digital nomadism and geo-arbitrage trends
The recent global COVID-19 pandemic significantly accelerated the drive toward remote work. Many organizations worldwide have acknowledged that flexible work is an enduring feature in the modern working world.
The American Opportunity Survey by McKinsey revealed that more than half (58 percent) of Americans have a work-from-home opportunity at least once per week. A further 35 percent work from home full-time.
Generally, more educated, younger, and people with high incomes seem to have more options for remote work. However, the possibility to work remotely also depends on the type of occupation.
Based on the McKinsey survey, occupations with the most opportunities for remote work include:
Computer/ mathematical jobs
Business/ finance operations
Arts/ Design/ entertainment/ sports/ media
On the other hand, occupations with the least opportunities for remote work include:
Farming/ fishing/ forestry
Transportation/ material moving
Food preparation/ serving-related jobs
The McKinsey report also indicates besides greater pay and better career opportunities, jobseekers increasingly place a high value on flexible working arrangements.
In fact, the report revealed that workplace flexibility stood out as a top reason people accepted new jobs during the early stages of the COVID-19 pandemic.
Most Popular Countries of Origin and Destinations
As digital nomads take advantage of geo-arbitrage, the most popular origin countries are typically developed nations.
Here is a list of countries that are the sources of the highest number of digital nomads:
The destination of the digital nomads is a mix of developed and developing countries.
Here are the top 30 city destinations, with most nomads seeking residence in Europe, South East Asia or North America.
And here are the top 10 country destinations:
How much can you save through geo-arbitrage?
The geo-arbitrage concept revolves around earning an income in a strong currency (such as Euro, British Pound, or Dollar) and then spending it in less expensive countries like Mexico, Vietnam, or Spain.
For example, the average social security income in the United States is $1657 ( as of Jan 2022). Those living off this source are considered poor. However, a family of 2 can afford a modest lifestyle on the same amount in Mexico.
However, you don’t necessarily have to fly out of the US to save money on your living expenses. For example, domestically, moving from California to any of the Southern states can save you over 40%.
With that stated, the benefits of geo-arbitrage typically go beyond a lower cost of living. It includes the following:
Access to colleges and other learning institutions
Easier transportation options
Friendly tax policies
An ideal lifestyle.
All these aspects played a part in the decision by Nic and Court (the couple behind Modern FImily) to move from Florida to Canada. They moved to start a family and retire while in their thirties. These two were, in particular, incentivized by the country’s family-friendly policies concerning extended parental leave, colleges, health insurance, and child tax credits.
Based on data analysis from Numbeo.com and nomadlist.com, the average cost of living index of all the common origin countries is roughly 60.11, which is higher than the average cost of living index of 50.66 for all the common destination countries.
This workforce is moving from countries like Switzerland, which has a cost of living index of 110.34, to jurisdictions like Thailand, with a cost of living index of 38.62.
Meanwhile, most digital nomads are seeking less costly places to live and work.
Advantages and Disadvantages of Geo-Arbitrage
From quiet Vietnam beaches to South American cities, you can pick a place that suits your comfort. Generally, you can expect the following advantages and disadvantages when you travel as a digital nomad with focus on geo-arbitrage.
Advantages of Geo-Arbitrage
If you’re adventurous, you can appreciate new places and meet with diverse groups of people through digital nomadism and geo-arbitraging. New experiences can open up your worldview and inspire innovative thinking about concepts you previously viewed only in one dimension.
Realizing your dreams
You can fulfill your dream to travel or even pick up a new sport or hobby.
If you’ve always wished to travel, but work commitments tied you down, a flexible work schedule will help you achieve that dream. This means you can visit your ideal vacation destinations without waiting for your leave days to come.
This also means that you can schedule your vacation trips during the low tourist seasons and benefit from lower travel costs.
Lower cost of living
You can live comfortably in other countries for a fraction of what it costs in the US. The core point of geo-arbitrage.
If you travel to such a destination as Bangkok, you’ll find the consumer prices are 54.27% lower than in a city like New York. In fact, rent prices (one of the main expenses for families and individuals) are 78.68% lower in Bangkok.
Even lower taxes in a new state can reduce your cost of living without additional income or reduced expenses.
Apart from public healthcare systems at a reasonable cost, you can find private coverage for less in specific countries.
Some countries with affordable healthcare include Panama, Mexico, Colombia, Costa Rica, and Malaysia.
In Panama, large clinics and hospitals often have affiliations with US health facilities such as John Hopkins Medicine International and the Cleveland Clinic. With that arrangements, you can get the same level of care as in the US, but at a more affordable cost.
In certain countries, you can benefit from incentives to retirees with modest minimum income standards.
Some of the best countries for a comfortable retirement include Switzerland, New Zealand, Australia, Spain, Portugal, Canada, Ireland, Italy, Sweden, and Panama.
Panama offers an extensively comprehensive retiree program—the Pensionado Visa. In this program, qualified retirees can claim many unique benefits.
This includes reductions and exemptions for airline tickets, utility bills, public transportation, personal home mortgages, loans, doctor’s bills, dental exams, hospital services, eye exams, hotel stays, medications, and import taxes.
Many weather options exist when you have the flexibility to travel while working. That ranges from warm, sunny beaches to tropical rainforests. Indeed, you can change locations based on changing weather patterns.
As the season shifts to a cold winter climate in one destination, you can move to the sunny beaches in another country or state. Once the summer season sets in, you can then move back to your original location.
Despite these advantages, you’ll need to watch out for various disadvantages.
Disadvantages of Geo-Arbitrage
Before jumping into geo-arbitrage, you should be aware of its potential downsides. These are the typical challenges you might encounter;
Distance from loved ones
Seeing your friends and family may involve a long, expensive flight. This applies if you can’t travel with your close family or friends. Distance from your loved ones can strain relationships and even ruin them.
Moreover, you might have to consider the systems available to facilitate regular communication with your loved ones. This, too, may involve extra costs as you travel back and forth to visit your family.
Depending on your destination country, you could pay taxes in the US and abroad. So, can you avoid being double taxed while working outside the US, maybe for a few weeks or months?
Yes, but you should plan carefully. You might be OK if your trip lasts only a few weeks. Generally, you should leave within six months to avoid filing tax returns in a second country.
However, there are exceptions to this rule. If you have a digital nomad visa, you may be exempt from local taxes if your employer is based outside the country.
Language and cultural differences
If you’re not going to an English-speaking country, you may have to learn a new language and culture. This can be a challenge if you need to interact with the people around you. It will also be a bigger problem if your line of work requires social interactions. The Internet provides multiple avenues to learn and practice many languages.
Some countries experience frequent political and economic upheavals. Therefore, you should be aware of the country’s political state even when there isn’t any political instability. Also, some countries have fewer political freedoms than others. You certainly don’t want to end up in jail or be deported for actions you don’t consider criminal.
The goods and services you’re used to may be hard to find or completely unavailable. A lower cost of living might come at the cost of quality. The modern necessities you take for granted in your country of origin might be treated as luxuries in your host country.
Based on these potential disadvantages, you must carefully consider any destination city or country. Remember, one ideal paradise destination might be a great place to visit but terrible for full-time living.
Countries Offering Digital Nomad Visas
Just as digital nomads look for the best destinations, various locations are also trying to attract such professionals. The issuing of digital nomad visas is one emerging trend among countries to attract this group. Estonia officially announced the first digital nomad visa in 2020, offering an immigration pathway for these professionals.
So, what is a digital nomad visa?
This visa is also known as a remote worker visa or freelancer visa.
It’s issued to people who want to work from a specific country on a less permanent, more fluid, and flexible basis. Typical professionals in this category include travel bloggers, freelancers, expat-preneurs, adventure travelers, techpats, and remote employees.
Since the first visa was issued, more countries are noticing the economic benefits of attracting remote workers.
Currently, 46 countries have started issuing nomad visas. The list includes:
The benefits to digital nomads are evident, but what benefits do these countries get?
Firstly, digital nomad visas can temporarily fix visa delays and immigration policy problems. It is on record how immigration policy issues and long visa processing backlogs can prevent many knowledge workers from working worldwide.
Secondly, digital nomads facilitate the flow of knowledge and resources between regions. This benefits the nomads, organizations, entire industries, and host countries.
Thirdly, digital nomads can contribute to fostering entrepreneurship and technology clusters across the globe. If such digital nomads are mainly foreign entrepreneurs, they might set up new enterprises in their destination locations, even if they stay for just a few months.
The destination countries and cities can benefit enormously (besides getting extra tax dollars).
The Future Of Digital Nomadism And Geo-Arbitrage
Although digital nomadism has increased rapidly, it’s important to note that 60-70% of the labor force has no opportunity of working remotely. That’s because most such jobs involve cutting hair, caring for patients, working machinery in manufacturing, and working with specialized equipment in a laboratory.
Some industries certainly will have more digital nomads than others. However, it is difficult to predict specific shifts towards digital nomadism.
The more likely outcome is organizations implementing hybrid work schedules requiring workers to sometimes come into the office. Therefore, workers might limit their relocation plans based on such a requirement.
Most people will likely just relocate a short distance from the office but within commuting distance. Others spread to rural areas or smaller towns – not to another country.
That’s because the privilege to traverse the globe remains with a tiny group.
– The cost of living in some countries can be as little as a quarter compared to developed countries.
– Half of all digital nomads come from the United States, and the country had more than 15 million digital nomads in 2021.
– In certain countries, you can benefit from incentives to retirees with modest minimum income standards.
– You may be exempt from local taxes if you have a digital nomad visa.
Image courtesy of Pixabay.