In the Personal Finance community, a term that gets tossed around sometimes is Geo-Arbitrage: the idea that you can relocate to places with lower costs of living to make your money stretch farther when paying for the things you need on a day-to-day basis. This comes from the finance term, Arbitrage, which is essentially taking advantage of the same investment being priced differently in two different places. Investors can quickly buy it at the low price and sell it at the high price and turn an instant profit. Now, in efficient markets, arbitrage opportunities are hard to come by and quickly disappear. However, in the real world you’ll notice them all over the place, once you open your eyes to it.
For example, think about the last time you had to fill your car up with gas…In the wealthy part of town, or maybe by a highway exit, the prices are always a bit higher, but in the middle of nowhere the same tank of gas could be significantly cheaper. When you up the distance to cross state or national borders, the price disparities for equivalent goods/services become even more obvious. This is where the geo-arbitrage crowd takes advantage. From food to housing to medical services, looking outside your home country can mean significant cost savings.
Now, none of this is true arbitrage because I’m only talking about buying things, not buying and then selling for a profit. However, I think the term still works because you are profiting when you buy something that you already needed, but for a cheaper price. The profit is just in the form of keeping more dollars in your pocket (or bank account). So let’s talk about an area where my wife and I found some unexpected arbitrage- with groceries.
Food is a constant area of discussion when it comes to frugality and personal finance because it’s one of “The Big Three” areas where we typically spend the most money (the others being housing and transportation). For most people, cutting back what they spend on food can make a significant difference in their budget.
Now, the first area to strike within “Food” before worrying too much about groceries is usually going to be restaurants and bar spending. This is where tons of people are just constantly bleeding money. Especially in major metro areas like where I live, it’s easy to spend multiple hundreds of dollars every month so that other people will prepare your food and drinks for you.
However, I’m not suggesting people abandon socializing and sit alone in their homes. A few years back I was eating almost all of my meals at restaurants or as takeout, even when it was just for myself. That’s an obvious place where cooking just makes common sense; I was paying extra mainly out of laziness. Then, when it comes to meeting up with friends, things like potlucks and house parties can often be way more cost effective than always going to bars or restaurants. Plus, when you do go out, does it really need to be something fancy and expensive or is it more important to see and chat with your friends/family?
Once we trimmed the fat in those areas, that’s when the price for groceries started to really count. My wife and I now eat almost entirely food that we (okay, she) prepare(s) at home, including lunches during the week. This has been a great situation both in terms of nutrition and the monthly food costs.
So, I had gotten fairly complacent that I didn’t need to worry about the actual grocery costs. That is, until my wife decided to switch it up and grab groceries at the Trader Joe’s near her work instead of Wegmans where she had been regularly shopping for over a year.
(I love numbers)
On a whim I decided to grab what data I could from various emails and receipts about our grocery spending. I split the bills into the time when we were mainly shopping at Wegmans and when we were mainly shopping at Trader Joe’s. The dollar amounts are per person, per week, and they exclude most meat purchases which are done less frequently in bulk from another source. The data isn’t super precise, but is enough to paint a very clear picture.
I certainly knew that Trader Joe’s was a bit cheaper, but I had no idea how significant the difference was. Wegmans was costing us just under double what Trader Joe’s now does. This is while buying essentially the same ingredients for mostly the same regular rotation of meals. The groceries in this table are mainly organic and vegetarian and we’re in a major metropolitan area, which probably raises the cost vs other areas of the country.
Pretty incredible, given that the only major difference is buying the food from one building a few miles down the road from another building. On average this switch is going to save us almost $3,000 each, every year and, using the 4% rule of thumb, means we’d need $70,000 less in net worth (again, per person) to sustain that spending indefinitely. That could mean achieving financial independence a full year earlier than if we stuck to shopping at the more expensive store.
So, I’m definitely not saying that everyone needs to shop or eat a certain way and I’m not trying to disparage Wegmans, they’re a great store. I just wanted to give a glimpse into the value that can come from checking your assumptions and looking into areas where you may already be doing pretty well. I thought our food spending was pretty great, since we weren’t spending much on bars or restaurants, but it turned out there was a bunch of free money available just by switching something as simple as the location where we buy our groceries.
Other areas where this sort of easy savings can be common is in looking for other cell phone service providers or getting quotes from different companies for insurance. I wrote about my experience with the latter here.
Post Script: My wife is amazing for doing almost all of the shopping and cooking. I’m trying my best to never assume this is how it should/must be and remember how grateful I am that she’s interested in putting in that extra work to take care of our little family.