There are lots of ways to measure wealth. Net worth is a very common one. Income is another. But it could be argued that disposable income is an accurate measure of how wealthy someone feels in their day-to-day life.

Disposable income is basically the money you have left each pay check after you’ve covered off all your essentials. How much of it you have can make a huge difference to how stressed or relaxed you feel about your financial situation. And where you live can have a huge impact on how much disposable income you have.

Here in New Zealand, it’s actually easy to see this in action all over the country. Our nation is a textbook example of how people with lower incomes can have more disposable income than those with higher salaries and more expensive houses.

To show you what I mean, let’s look at housing. It’s pretty much everyone’s largest expense wherever you go. Unfortunately for this I’m going to rely on rent data because it’s easier to find, but you can bet mortgage payments will be more or less in proportion.

Auckland

Auckland is one of the most expensive places in NZ for housing, if not the most expensive. The median rent in Hillsborough, according to Tenancy Services, is $575. This isn’t the CBD, we’re talking way out on the south coast of the isthmus here.

Now, payscale says the average Auckland income is $58,943. We can use the PAYE calculator site to figure out that if someone on that income has no student loan and is paying the minimum 3% into their KiwiSaver, their weekly take-home pay is going to be $877.93 each week.

After rent of $575, that leaves you with $302.93 per week and you haven’t even bought your groceries or paid your bills yet! Of course many households are two-income households so don’t despair. But because the same is true all over the country, we don’t need to add an extra income to make an accurate comparison.

Invercargill

New Zealand has many provincial cities that offer a cheaper way of life while still offering all your basic amenities and entertainment options such as cinemas, bowling, pool halls and a good selection of bars and restaurants. Of these, probably the one most famous for its low cost of living is Invercargill.

The Tenancy Services site puts Invercargill’s average weekly rent at $300 if you’re living in the suburbs. Take an average annual income of $49,822 and run that through the PAYE calculator and after taxes and KiwiSaver you’re left with $762.86 each week. Subtract your rent and you’ve got $462.86 each week for your groceries, bills and everything else.

Maths Rules!

So in short, live in Invercargill instead of Auckland and you might earn nearly $10k less each year but somehow through the magic of geoarbitrage you’ll have (on average) $160 more each week in your back pocket to spend (or hopefully save some) as you see fit!

The best part of this is if you work in a profession that tends to be fairly consistent in how it pays people regardless of where they live. That way you can reap all the benefits of cheaper life in the provinces without sacrificing much (if any) income. Government jobs tend to be examples of this, though they’re not the only ones. If you’re a teacher, nurse or police officer, chances are that if you move to a smaller city you’ll earn exactly what you’d earn in the big smoke, but with a way lower cost of living!

I’ve used kiwi examples here because they’re what I know and I know where to find the data, but this maths (no, we don’t call it math here) is the same anywhere in the world. Compare the cost of living in New York vs. Wisconsin. Or in Manila vs. Tagbilaran. Or in London vs. Weston-Super-Mare.

That’s geoarbitrage. Next time, I’ll go into how you can create a similar effect without having to move at all.

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