Cost of living in the foreign countries I recommend

When researching historical hyperinflation episodes, I discovered that stable foreign currency is one of the best things you can have during hyperinflation.

I then searched for the foreign currencies least likely to hyperinflate. Generally because of low debt-to-GDP ratios, high Transparency International lack of corruption ratings, high economic freedom indices, and the like.

My recommended countries have been and remain:

• Australia
• Canada
• Denmark
• New Zealand
• Sweden
• Switzerland

Now I am going to Australia and New Zealand in March. So I have been Internet scouting for neighborhoods in the two biggest cites in those countries: Sydney and Auckland—for a one-bedroom apartment that can be rented for about $1,500 a month U.S. That is an arbitrary amount that just seemed like it might be adequate. When you actually go there and look you quickly will see whether the $1,500 a month places are nicer than you need or unsatisfactorily too cheap. I cannot resolve such things just by searching on the Internet.

Anyway, I had no trouble finding nice places in Auckland New Zealand for that price.

Sydney, however, was a whole different story. I asked my grad school classmates in Sydney and Auckland if I was missing something. Nope. Rather, I simply discovered what the jet set crowd already knows. Sydney is one expensive city by world standards.

Start with the Economist magazine’s Big Mac Index. It is simply the average cost of a McDonald’s Big Mac in various countries. Here is their list ranked from most expensive to least:

That’s the first I heard that Hong Kong was cheap to live in.

Now here is an expatistan.com comparison from of San Francisco, the area where I live, with various cities in the countries where I like the currencies:

So that warns you that Australian cities are very expensive except for Adelaide. Or, as in the U.S., you can go to Sydney and then hop on the commuter trains and go out to the stops where it is a 45 minute or longer ride. They appear to be much cheaper places to live on the Net. The key question that requires going there is do you like the neighborhood or find it adequate in terms of safety, transportation.

The fact that you are on a tourist visa does not mean you have to spend every day seeing the recommended sights or eating at the guidebook-recommended restaurants. The reason to go to these countries is to escape U.S. hyperinflation and disruption of access to the daily needs of life like food, medicine, safety, transportation. The Mayberry of Australia should suit just fine for that purpose. You do not need the Central Park East of Australia.

Also, you could just go to Canada or New Zealand and spend your Australian money there by withdrawing Canadian or NZ dollars from your Australian bank account by debit card. If you stick an Australian debit card into a Canadian ATM, you get Canadian dollars and ditto getting NZ dollars in from a New Zealand ATM using an Australian debit card. There would be a currency conversion charge of about 3%, but that may be better than a 28% cost-of-living increase to use an Australian ATM. Buying a $30 meal in Victoria, Canada and paying for it with an Australian debit card will mean you pay an addition 3% or 90¢ for the currency conversion—$30.90 total. But buy that same $30 CAD meal in Sydney and it will cost 28% more or $8.40 more, albeit with zero additional currency conversion cost—$38.40 total.

Based on the list of costs of living above, I would be best off using my Australian and New Zealand debit cards in Victoria, Canada. Of course, on a tourist visa, you can only stay there 90 days at a time. Same for the other countries. And there are other considerations. Victoria average summer high temperatures are in the sixties. Maybe spend an endless “summer” from April to September (with the necessary 90-day break to comply with the tourist visa) in Toronto and from October to March (with the necessary 90-day break to comply with the tourist visa) in Auckland which because it is in the southern hemisphere has its summer then. Toronto summer temps are in the 70s and 80s and Auckland’s are in the 60s and 70s.

My point here is that spending a currency in the country where it is issued saves currency conversion costs, but man does not live by currency conversion alone.

The reason to have the four currencies is hyperinflation diversification. That purpose is still served even if you never go to some of the countries where you have money.

This is all part of my multi-flag thinking.

Where do you put your savings? Where it is protected best.

Where do you live if the U.S. becomes intolerable? Where the cost of living is lowest.

Where do you operate your business? Where its after-tax net profit is highest.

And so on. Tricky business to figure it all out and I know it did not used to be. Welcome to 2013.

Arlo Guthrie said

You can get anything you want at Alice’s restaurant.

I am saying you can get the things you need on planet earth, but not necessarily all in the same country. Used to be all in the same country. Not any more. Sorry. Not my fault. Wishing won’t change it back.

A reader in Australia suggests this link as a well-designed way of comparing international costs of living; http://data.worldbank.org/indicator/PA.NUS.PPPC.RF The right-hand column—2008-2012 shows the ratio of the cost of living in the country in question to that of the U.S. Australia is1.5 which means it costs about 50% more to live in Australia than in the U.S. Canada and New Zealand are both 1.2 meaning they cost 20% more on average. Norway and Switzerland are the most expensive at 1.6 with Australia right behind them.

Also, I must remind people that one can drown in a pond with an average depth of six inches. Average does not mean the same everywhere in the country. But as you look at the breakdowns in the various cities most seem to be very expensive on some things and cheap on others. Like gasoline. The U.S. seems to be the best other than some goofy places where the dictator subsidizes it. Different countries subsidize different things.

These indexes generally make assumptions about your needs. For example, expatistan.com assumes you are employed by a multinational corporation or government and they pay your rent separately from your salary. To the extent that the assumptions do not fit you, they are ending you to the wrong place. You need to figure out what you are paying out and receiving these days and look for the country where you get the most mileage out of that. For example, if you are a tourist in the country in question in terms of your “papers,” you would not care how high their income tax was. If you use mass transit rather than drive, you are not interested in their gasoline prices. In other words, you need a You Price Index, not a Consumer Price index.

Identify what you spend your day doing and what you pay out and take in in money and optimize for those assumptions rather than accepting what some magazine editor chose.

I am a U.S. real estate investment expert. We frequently see books and magazine articles here that rate the best places. Well, places are my business and I take umbrage at these ratings. For one thing, I think the rating of the best place is simple. It is the place that costs the most. It has already been rated by the market. Many ratings actually downgrade a place for being high priced. That’s like downgrading the highest priced seats in a baseball stadium because they are so high priced. That means you are substituting some subjective judgment that the market does not agree with.

I will grant that the highest prices are the highest because they satisfy needs that are the most popular desires. Manhattan apartments are probably the most expensive in the U.S., but I do not want one. I live in a San Francisco suburb, one of the most expensive such places in the U.S. Other people like to fly fish so they do not want to be in Manhattan or the San Francisco suburbs.

Figure out exactly what YOU want and where you can get it for the lowest cost. Put your money where it is safest. Put yourself where you get the most of what you want for the least amount of money.

With communications like satellite phones, the Internet, Skype, and Vonnage you can be almost anywhere in the world and do most of the communication you need. Depending upon your business, you might have your employees in the most advantageous country in the world for that. If you live on an international land border like Canada-U.S., you can divide your physical presence in the two countries according to optimum advantage like buying your gas and groceries in the U.S., but having your safe deposit box in Canada to keep it out of the clutches of the U.S. government. If the U.S. gets hyperinflation and price controls, you might find it advantageous to move your business to Canada which would make sale of your products in the U.S. imports and imports are always exempt from price controls—although not tariffs.

Your physical presence is needed for some activities, like buying gas and putting things into or taking things out of your safe deposit box. For other activities, like savings accounts, business, your physical presence may not be necessary in which case it should be wherever in the world gives you optimum net income (e.g., capital gains in Singapore are taxed at 0%) or lowest cost (e.g., surgery in India).