The English economist Adam Smith wrote in his 1776 book The Wealth of Nations:
“Every man is rich or poor according to the degree in which he can afford to enjoy the necessaries, conveniences, and amusements of human life.”
While the obvious translation of this is that the more that you can afford, the richer you are, one does not necessarily need to earn more money to become richer. Instead, one could simply place themselves in an environment where they can more easily afford the necessaries, conveniences, and amusements of human life.
This is exactly the key principle behind leveraging currency exchange rates to increase your quality of life. By living or visiting a country where the currency you earn exchanges favorably for the local currency, you can easily double, triple or quadruple your spending power and/or savings rate.
Or if you prefer, you could work 2 or 3 times less hours per week, and keep the same spending power as you would of had in the country of origin of the currency that you are earning.
Of course there are the questions: how does one achieve remote work or build a lifestyle where this is possible? But this will be a topic that I save for another blog post.
Smith goes onto explain in his text that:
“Labor alone, therefore, never varying in its own value, is alone the ultimate and real standard by which the value of all commodities can at all times and places be estimated and compared. It is their real price; money is their nominal price only.”
The only real standard to measure the cost on something, is by the amount of labor you must perform to acquire it. Instead of thinking about the cost of something in Dollars or Euro, you should be thinking how many hours you must work to pay for it.
Smith also points out that:
“Equal values of labor are always of equal value to the laborer.”
While your boss might value your labor differently than his other employees, and thus pay each of you a different salary, you will always value equal portions of your own time the same. Eight hours from your life is eight hours from your life. It is a cost that has a fixed value to you.
I am currently writing this in Saint Petersburg, Russia, where the currency exchange rate has been very good in recent years. A meal at a buffet place costs around $3, and a central city studio apartment costs approximately $500. My cell phone bill for calling, texting and data is only $5 per month.
On top of being able to directly financially benefit the exchange rate, I also benefit from living in the center of a European city which has a well connected public transportation system. A trip on the metro costs approximately 50 US cents. Thus I do not need a car, and also do not need to make car payments, pay for car insurance, purchase gas or lose two hours of my day commuting to work. A decent chunk of the average American’s work day contributes to paying for each these costs, which for me are basically non-existent.
If you are trading time for money, then you will want to maximize both the amount of money you get for your time and the potential amount of goods that you can purchase. Substituting time into Smith’s definition for wealth, we get: How much time do you have to trade in the form of performing labor to afford the necessaries, conveniences and amusements of human life?
If you can’t double or triple the amount of money you are earning for your time, a hack is to move somewhere where the value of your money is two or three times higher. And this can be done by moving to an area where the Dollars or Euro in your wallet are worth more.
So now perhaps you can cut the hours that you need to work per week to live a comfortable lifestyle down to just 20, instead of 40. Now with this free 20 hours a week, you can use to invest in other projects whose potential financial return is not limited by the hours that you work.
For example, you could write a book. This book could then sell on Amazon for years, continuously earning you a passive income while promoting your work to new potential customers. Or you keep working 40 hours a week, but are able to save over half of the income that your bring in. This income can then by invested into an index fund,
which with compounding interest can earn you good returns in the long run.
So how should you choose a country where you can benefit from currency conversion rate?
You need to check the Cost of Living Index, to verify your spending power, because the numerical exchange rates between two different currencies can be misleading.
For example, Germany and Finland are both on the Euro, but prices are double in Finland. Kosovo also uses the Euro, but prices there are a small fraction of those in Germany. In this case, three countries use the same currency but have dramatically different costs of living in each country.
Another example is that 1 US Dollar is exchangeable at the moment to approximately 1 Swiss Franc. But a McDonald’s hamburger meal costs 14 Francs in Switzerland (14 Dollars). In this case, while these two countries have near equal exchange rates, their different costs of living make Switzerland a much more expensive place.
An exchange rate can also appear good, but actually be to your disadvantage. Normally the cost of a beer is a good standard with which to compare. Currently 1 US Dollars equals 8 Norwegian Krone. Sounds good, right? Wrong! A beer in Norway costs 80 Krone. So this is the equivalent of 10 dollars! Again the high cost of living in a country like Norway makes the exchange rate to you disadvantage, even if numerically it first looks advantageous.
Now let’s actually look at some advantageous situations, as that is the point of this post.
If you are earning Dollars, Pounds or Euros, the exchange rate will be in your favor almost anywhere in Latin America, Asia or Eastern Europe. In Asia, you might even be able to afford a private driver or chef. One US dollar currently equals 27 Ukrainian Hryvnia. And beer in a bar in Ukraine can cost only 30 Hryvnia, which equates to not much more than a dollar.
Some might make the argument: “But why would you want to live in a place like Saint Petersburg, Prague, Krakow, or Budapest?” This normally comes from ignorance of what such cities are like. Now of course if you are married, or have kids, things like schools and healthcare come into the mix. But if you are a young single guy or girl looking to stretch savings or live cheaply while starting an online business, these places may be a great option.
Saint Petersburg, Russia is a much cleaner than New York City, has beautiful architecture, and a good night out won’t set you back hundreds of dollars. Since relatively you can afford a greater amount here than the average local, you can potentially live much more comfortably than you would in most US cities. I was always surprised at the price people pay for old run down apartments in cities like NY or Philadelphia. For a fraction of those prices, you could have a huge apartment which overlooks a canal and is above an incredible but affordable restaurant.
So to summarize, by going somewhere where your expenses are lower, and the value of the money you earn is higher, you can increase your standard of living overnight.
Check out these free travel guides, for more information about different cities and countries that I have personally been to and reviewed.by