I should definitely learn to save links when I read something interesting, especially if I plan to use the material later.
I think (I think) Byrne Hobart, the author behind Capital Gains, some months ago wrote that moving from one location to another to do the same job is a “beta move”: even if the job in the new location pays a higher salary, the mobile worker soon enough will realise the higher pay comes with higher costs, leaving them on a net-net basis in the same situation they were before.
As someone that did this more than once, I decided to offer my (very anecdotal) point of view. It is an interesting topic because, unless you are lucky enough to find a great opportunity in California or Miami, usually there is a pretty clear trade-off between earning more (or not!, to Byrne’s point) and getting enough exposure to sunlight that you do not have to take vitamin D supplements.
On one side, this trade-off is one of the few ways to put a clear price tag on how much someone is willing to sacrifice in order to live where they want. On the other, we are all different and some people would NOT want to go to live in Miami even if they are offered MORE money. And then comes Byrne’s point, where “earning more” is just an illusion.
Byrne’s affirmation might work in financial terms (I do think it does only in a very narrow sense) but there are also ‘valuable intangibles’ that can move the dial in one sense or the other. Let’s see if I can express my thoughts in a semi-comprehensible way.
Luxembourg
I lived in Luxembourg for 6 years and I can say I was one of the few expats that were not bothered by it. At least in Europe, is probably the sole example of a destination that had no appeal other than better working conditions. I say “had” because nowadays even that appeal is basically gone. I would personally pick Luxembourg over Ireland any day but I think I am in the minority here…
When I move to Luxembourg (17 years ago? Who’s counting eheheh), the financial gain was clearly there and it is pretty easy to demonstrate if you take, as an example, a junior auditor. Their tasks are the same everywhere. At that point in time, they were offered salaries that were up to 3 times higher than in Milan with a cost of basic living (rent, food) that was in line with the one in the real capital of Italy. I know it because I moved to Luxembourg from Milan and I had friends that were auditors (poor them) in both places. I refer to basic living not because everything else was more expensive…but because there was hardly anything else worth spending on. If you wanted to “have fun”, you had to go somewhere else, which represented more a time tax than a money one (from Luxembourg, you can easily go by car to many places and Ryanair was still cheap-but-not-a-pain-in-the-ass).
I do not think this necessarily invalidates Byrne’s point because, as it happens in financial markets, this alpha got arbitraged away. The tipping point was probably the Euro debt crisis in 2012; after that, the influx of Spanish and Greeks was impossible not to notice. Nothing new under the sun rainy sky of Luxembourg: economic crises pushed migrations for ages. Since then, costs increased way faster than salaries.
But even if the opportunity closed, the “early movers” got everlasting advantages. Their career moved faster; they had the chance to buy real estate or start a business with little competition. And then the proverbial tide (or a wave in this case?) pushed them up with everything else. In a way, you just had to be there…and then profit.
I set F.I.R.E. to the rain
The concept of FIRE was a million miles away from me when I was living there and yet, in front of another beer in a usually empty bar, I found myself discussing “related topics” with friends. We saw Luxembourg as working on an oil rig deep into the North Sea. Long stretches of well-paid but dull moments waiting to be “ashore in Amsterdam or Ibiza” to spend our gains. Sometimes it was a flash-FIRE, emotion-frugal weeks for freedom-weekends, sometimes the goal was farther in the future: no one really planned to retire in Luxembourg, we all had an end-point to leave and profit from our gains, financial and career-wise, somewhere else. (None of us was thinking about having a family at that point; if we added that to the equation, the conclusion would have been different, and more in favour of staying in Luxembourg, I guess).
Sometimes the opportunity is really there, and frugality comes in different forms, not only financial. Saving a good portion of your income in Luxembourg was not that hard; the question was more about how much you were compelled to spend to compensate for the grievance of living in a boring place.
I stumbled into Luxembourg totally by accident. I am not sure if currently there are similar opportunities around the world, the job market demand/offer imbalance was so crazy that folks in the fund admin industry could jump from one shop to another every year/year and a half and land a 30% salary increase after every step. If you find one, do not consider it as the $10 bill in the middle of the street that shouldn’t be there cause someone would have to pick it up earlier. Have a closer look. Even if it is another…
…Switzerland
Byrne’s idea thrives in Switzerland. Sure salaries are high, but have you checked the local Mcdonald’s prices? The forever top 10 resident in my Billboard chart of annoying comments I am forced to listen to.
Everything is disproportionate in Switzerland and the far distance from everyone else reality is probably what enforces the misconception. The increase in salary more than compensates the costs, it is not just beta. But even if it was only beta, there are still tricks that would make it a profitable move.
First, an important assumption. You are not moving to Switzerland because…you already wanted to move to Switzerland. I am talking about opportunistic moves only here. This assumption brings a useful corollary: you are not planning to stay indefinitely, i.e. you plan to retire somewhere else.
One consideration is neatly related to the relationship between Inflation, the figure that is published every month, and your personal inflation, the price increase in your personal consumption basket. Swiss costs are higher but the increase is not proportional across every item. iPhones do not cost double in Switzerland compared to Italy, they are actually cheaper because the VAT is lower. Cars, white goods, and basically any high-value item are priced like anywhere in Europe (barring extreme FX volatility). This makes sense, otherwise no one would buy those things domestically and simply drive one hour to cross the French/German/Italian border. Just to stress that even non-frugal dudes have their props at living in Switzerland.
Any service that has a big local labour component is expensive. If you like to eat out, and somehow are not discouraged by Swiss opening hours, then your budget will take a severe hit. IKEA stuff is cheap but IKEA delivery service…costs like an Apple gadget. Online shopping on non-Swiss websites is ludicrous. You get the idea, depending on your consumption basket, you can end up way ahead or behind. Usually, you get a benefit because none of this shit is a non-negotiable for 90% of the population. You moan, adapt and at the end of the day you have more savings on the side.
A beta move implies that if you were saving 5% of your income, now you are still saving 5%. Crucially, that 5% buys a lot more stuff outside Switzerland. I can only agree with Andrea’s take here:
Even if you are saving the same % amount, holding a higher absolute amount can provide flexibility.
This was my pet peeve when I was living in Luxembourg and lads were telling me “Once I am back in Italy I will earn less but, on relative terms, it will be the same”. I cannot disagree with this sentence, in a strict context: if you are sure that you will be happy to stay in Italy from that day on, then you are better off because your non-financial situation improved. Same for those folks that FIREd with an annual budget that is equal to my son’s nursery bill in Zurich: I am delighted about your life in nowhere England or Thailand.
But what if something happens? What if…you change your mind?
Sure, one unnecessary day on the grind, or in a place you hate, is one day too much. I am just sceptical that you can develop a certain certitude, even if it is about yourself, when you are in your 30s.
But I am digressing here. My advice, when everything else looks to be the same, is to take the higher salary. I guess Byrne’s point is that everyone already does that and then their expectations of a more prosperous life are disregarded. In that case, my advice is to look deeper: your situation is, or will be, better.
If you find Byrne’s post, please add the link to the comments. If you find Byrne’s post and realise that I butchered his thinking…it is totally possible! I have goldfish-like memory, but my considerations still stand 😉
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