A few months ago I asked Chuck Bolotin, founder of Best Places in the World To Retire, to write a piece for the cost of living for a particular region and he suggested writing an article about why, in general, it costs expats less to live in some places than in others, and how this understanding could be applied anywhere in the world. Given his background in economics and business (he is a guest lecturer in an MBA program at the University of Arizona) and as someone who has read every one of those more than 6,000 answers and conducted the study, and because he is very interested in how things work and how to raise standards of living for everyone, Chuck is uniquely qualified to write this piece. If you want to know what it costs to live for a Month in Bali or a Year in Australia, this can give you some good guidelines.
Chuck’s Best Places in the World ToRetire, which has over 6,000 answers to the most often asked questions about moving overseas, and over 200 expat stories and interviews of the most interesting people overseas, was started just over two years ago, the site currently includes Panama, Nicaragua, Belize they just added Mexico, and more are on the way. (They also just published a study Expats: Expectations & Reality, which can be downloaded for free.)
What Does It Cost to Live for a Month… Anywhere In The World?
We hear the claims all the time:
Move overseas and you will you be able to afford to live like royalty for $1,500 a month!
Is it true?
After reading more than 6,000 answers to questions about living overseas, reading more than 200 expat stories, and conducting a survey of expats in which, in part, we asked questions about cost of living, I believe I have the answer.
To explain what it depends on, let’s divide expenses into three categories.
- Costs for Items That Are Imported Into Where You Live
The cost of anything that is made in the US or Canada will tend to be about the same in dollar terms wherever you live abroad. Do you live in Nicaragua and need Skippy Peanut Butter? You’ll pay the same or more for it than if you were in the US, if you can find it at all. Living in Panama and just “got to have” that California wine? It will cost you the same or more than in the US, even through you’re in “low cost” Panama.
Here’s why: the cost to make Skippy Peanut Butter in Little Rock Arkansas or a California wine in Napa Valley doesn’t change if that item is shipped to Nicaragua or Panama.
When I visited the small, poor fishing village of Cabangan in the Philippines last year, I got a surprise invitation to visit a local home. Not wanting to come empty handed, I stopped off at one of the local stores to buy some sort of gift. After a little searching, I found it: a huge can of fruit cocktail. The cost? $8. (I could have gotten the same thing in the US for $6.) Why did fruit cocktail cost more in the Philippines than in the US? Because the Philippines doesn’t produce canned fruit cocktail, so the can I purchased was manufactured in the US and shipped to the Philippines.
We hear the claims all the time: Move overseas and you will you be able to afford to live like royalty for $1,500 a month! Is it true?
- Costs for Goods and Services That Are Produced Locally
If you use US dollars to buy items that are produced locally in a country that is less wealthy than the US, in almost all circumstances, you’re going to pay a lot less than you would in the US, sometimes ridiculously less.
In our business, we employ transcriptionists from the Philippines who type conversations we have with expats who answer questions about what it’s like to live overseas. The first audio I had a new transcription type was of a US expat describing her life in Nicaragua. Here’s the conversation I had with my new transcriptionist:
“What did you think of the recording you just transcribed?”
“I was surprised by how expensive it was in Nicaragua.”
“Really? Can you give me an example of what’s expensive?”
“Sure. Messages in Nicaragua cost $10 for an hour. That’s way too much. In the Philippines, they’re $5 for an hour.”
An American expat in Nicaragua explained to me that you couldn’t find an automatic dishwater or automatic pool cleaner for purchase there. The reason: the cost to hire local Nicaraguans full time to wash your dishes and clean your pool is less than the cost of machines to do it. Essentially everyone, he explained, had domestic help, even the people who retired to Nicaragua on extremely meager savings.
Here are some other examples of prices of goods and services you will pay if you purchase them in the country where they’re manufactured or where the provider of the service lives:
- Bananas in Belize: 5 cents each
- Part time carpenters the Philippines: $5 per day
- Handmade furniture in Nicaragua: about a third of the price as in the US, usually made out of beautiful, locally grown mahogany
- Housekeeper in Panama: $20 per day
Do these prices seem low to you? Not if you’re a Belizean or a Filipino. To them, these prices are about right. The reason is that the average production of a Belizean or a Filipino in their home country is much less than the average production of an American living in the US, which is why, on average, the people living in poorer countries have less money to buy things than the average American. So when you go to a country like Belize or the Philippines and you use US or Canadian money, the only people you’re competing against to buy local goods and services are the more poor locals, which causes everything to seem cheap to you.
- Cost for Goods and Services That Have Some Local Component and Some Imported Component
Some items, like your house in Thailand, are comprised of a combination of some goods and services that can be imported and some that cannot.
A Moen band water faucet, for example, must be imported to Thailand, so it will cost about the same or a little more there than in the US.
Labor (for example, the $5 per day carpenter in the Philippines) is not imported, so, to you, Filipino carpenters work cheap. That’s why, in places like the Philippines, it is not unusual to see the better houses made of brick. In the Philippines, you can hire about 20 bricklayers for what it costs for one in the US.
Of course, land can’t be imported, so the price of varies dramatically, including if you’re in a poorer or richer area. Here’s the rough price for a quarter of an acre in various locations:
- Malibu, California: about $750,000
- Coronado, Panama (gate guarded expat area): around $150,000
- Cabangan, Zambales, Philippines (fishing village mostly inhabited with locals): $20,000
So, how much will it cost you to build a house cost you overseas? Just take the cost of the land in that location and add to it the cost of construction, which will consist of some things that you must import and some things that you have a choice whether or not to import. So, overall, your house will cost less. The question of “how much less” is up to you. The more locally sourced labor and goods you use, the cheaper it will be.
Conclusion: How To Live Really Cheaply Overseas (Or Not)
So, can you live more cheaply overseas? You can live very cheaply overseas in poorer countries using dollars you made in the US and Canada, but only to the extent that you buy local goods and services. Personal services like massages, domestic help, labor to build the cabinets in your fabulous new home, etc., can be astoundingly inexpensive. French wine will cost you the same or more.
So, get your massages in the Philippines, eat bananas in Belize, and drink what many people believe to be the finest coffee in the world in Panama for ridiculously low prices. Build your brick house on the beach in the Philippines and marvel at your spectacular, hand-made mahogany furniture in Belize. Just don’t expect Del Monte fruit cocktail to go on sale any time soon in Cabangan.