Savable Income: How to Earn 1/3 Less but be 3x Richer

By Nat Eliason in Finance

Published or Updated on Mar 31, 2016

The #1 reason I’ve seen people not go after the life they want and fun work is that they’re focused on reaching a certain salary.

They get enticed by a big number and then ignore something they’re passionate about because it doesn’t pay enough. Or, worse, they assume that it can’t pay them at all (writers, artists, etc.).

But salary is incredibly deceptive, and should not factor into your decision-making in what job you take. Instead, you should think about your savable income.

What is Savable Income

There are four variables with your income:

  • Total income (your salary, earnings, etc.)
  • Take home pay (what you keep after taxes, deductions)
  • Cost of living (rent, food, balling out, etc.)
  • Savable income (what’s left after your cost of living)

If you have a high salary, but a high cost of living, then your savable income at the end of the month will be lower than someone with half of your salary but a lower cost of living and lower tax rate.

And if you’re trying to increase your runway to quit your job and start your own thing, then savable income is the number you should focus on.

If you’re spending $3,000 a month in NYC and saving $1,000, it’ll take you 3 months to save up one month of runway.

But if you’re spending $1,000 a month in Medellin and saving $2,000, then every month you work you’re saving enough to live for 2 months without working.

This is extremely powerful if you want to break off and do your own thing. You need a certain amount of runway to sustain yourself if you want to work 100% on creative projects, and to get that runway, you need some amount of savings (or passive income).

The best way to get more savings? Increase your savable income, primarily through geoarbitrage.

Boosting Savable Income through Geoarbitrage

Let’s compare three people.

  • Jack lives in NYC, and makes $75,000 a year
  • John lives in Austin, and makes $60,000 a year
  • Jill lives in Medellin (Colombia), and makes $50,000 a year (USD)

To keep it simple, we’ll assume:

  • They all live in equally sized apartments in comparable locations in their respective cities
  • They all live similar lifestyles, involving eating out, cooking, partying, and so on
  • They also all have similar debts (school, etc.) creating a negligible difference.

Now, first, let’s see what their take-home pay is (you can check my numbers here).

  • Jack, living in NYC, takes home $4,062.34 per month
  • John, living in Austin, takes home $3,766.77 per month
  • Jill, living in Medellin (but paying Florida taxes), takes home $3,205.52

Next, let’s take care of their rent. For a comparable space in NYC to Austin, you can expect to pay roughly twice as much (source).

For Medellin, about half of the cost in Austin.

We’ll say that John has a $1,000 / month apartment in Austin. That means Jack is paying $2,000, and Jill is paying $500.

After we subtract their rent, we end up with:

  • Jack has $2,062.34 / month
  • John has $2,766.77 / month
  • Jill has $2,705.52 / month

Then if everything else has a similar cost ratio (which, in my experience, it does), John could spend $1,000 a month in other activities and still have $1,766 left each month. If Jack wanted to live a similar way, he’d spend $2,000 more and end the month with $62. But Jill would end the month with the most at $2,205 by only spending $500!

  • Jack ends with $62.34
  • John ends with $1,766.77
  • Jill ends with $2,205.52

Jill started with the lowest salary, but she ends up saving the most and taking home the most just because of her location.

If your reason for picking a job is financial, then clearly the more financially responsible thing is to do remote work for $50,000 a year from Medellin.

But there’s another, possibly more fun way to take advantage of this…

Balling Out with Geoarbitrage

What if we set the goal to end the month with no savable income?

Jack is already there, so he can’t do much else. Poor Jack.

John, though, could spend an extra 50% on activities and rent, bringing his costs for each up to $1,500. He’d have a bigger apartment further downtown and possibly without a roommate, he could go out to eat more, go on more dates. John would have a significantly “richer” lifestyle than Jack, despite making less money.

But Jill has it best. Because of her costs, she could spend 3x as much on her rent and life, and still take home some money at the end of the month.

That would mean having one of the nicest apartments in the city, eating out for every meal (or hiring a chef), getting bottle service at clubs, taking monthly trips, using Uber Black to get everywhere, etc.

Of the three she still has the lowest salary, but by locating herself strategically, she gets the richest lifestyle.

Before you get too wedded and enticed by a certain salary, think about what savable income you’re going to have, and the kind of lifestyle you’ll get with it.


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