A Personal Solution for the Inflation Crisis

I’m 56 years old and for the first time in my adult life, I am truly worried about inflation.

I guess I don’t have to tell you about this crisis hitting America. You feel it in your wallet and see it in your life. It’s yet another financial event set to destroy savings and waste away retirement nest eggs.

And higher prices are here to stay. Most of these price hikes are not going away. I mean, how often in your life have you seen the cost of living decline?

Prices go up. And aside from mortgage rates and a select few commodities like gasoline or technology like new TVs and computers, they don’t come down.

The facts are stark: The U.S. inflation rate was 8.3% in April (the latest figure we have at time of writing)…little changed from a 41-year high of 8.5% in March. Prices are set to soar for just about everything we eat. The price of beef is set to rise by 16.2%, poultry by 12.5%, eggs by 11.4%, and so on. (That’s according to the U.S. Department of Agriculture’s Food Price Outlook report for 2022.)

Across the U.S., apartment rents are up 14% from last year. But that’s on average. In cities like Austin, Miami, and New York, they’ve jumped 40%.

Mortgage rates, meanwhile, have soared by 50% in four months, adding hundreds of dollars to monthly repayments for potential new homebuyers.

In fact, rates have escalated so quickly that as I write people who started their home-buying process months back are now in a situation where they can no longer afford the mortgage for the house they’re contracted to buy.

Thankfully there are actions you can take to protect yourself and your money.

As an IL reader you know you’re not chained to one country or one economy. Which means you have the freedom and ability to protect your wealth and dramatically upgrade your lifestyle by looking in the right places overseas.

And before you ever move, there are actions you can take to manage inflation and protect your financial well-being.

Escape Inflation…and Upgrade Your Lifestyle

For more than a year now, I have been telling readers of my Global Intelligence Letter that inflation was going to be a huge problem.

Now, here we are: The worst inflation in over 40 years. And the reality is that this bout of inflation is a truly global phenomenon.

I live in Prague in the Czech Republic where prices are climbing, too. My rent is up and utility prices are damn-near doubling. The chocolate croissant and iced latte that is a typical breakfast for me is up 12%. Granted my costs are still much lower than if I were living in the States but spread that across the various groceries and restaurant meals I buy, it’s still real money leaving my wallet that once went into savings and investments. I quiver to think how much more I’d be hemorrhaging if I were still in the U.S.

So, I’m now officially on the hunt for another overseas destination to call home.

That big ball of financial angst was on my mind when I was touring Mexico’s Riviera Maya over the spring. I was ducking into various condo communities in Playa del Carmen and Tulum as part of a real estate tour organized by Ronan McMahon, the overseas property expert behind Real Estate Trend Alert.

I was hearing the prices these condos were going for, and suddenly I was thinking: Well, here’s a way to attack inflation— lower my costs while also scaling up my standard of living.

For less than my wife and I pay in rent for our Prague apartment, we could buy an amazing condo in Playa del Carmen or Tulum. Three bedrooms, near the beach. A plunge-pool right outside the massive master bedroom, reached through a set of sliding glass doors that is effectively the entire fourth wall. Gorgeous furnishings. Frankly, a resort, spa-like hotel masquerading as a condo.

Actions you can take to protect yourself.

This is the beauty of having an International Living mindset…

Which is why my wife and I are now planning a “relocation tour.”

There are three countries on our radar that we want to further explore as we look for our path toward a cheaper cost of living with an upgraded lifestyle: Mexico, Portugal, and Greece.

Before I dive into each, let me share my criteria for choosing these countries. I know every life has its own facts and circumstances, so my best advice is to craft your own criteria, profile yourself, and determine what you’re looking for in a destination. That will help you create your own shortlist.

Ok, so my criteria:

1. Where can I both live and work?

This is my primary concern. I am a digital nomad working from home. I need a visa that allows me to reside locally, but also the right to earn a living locally. Not all countries will allow that.

Yes, I could sneak around those laws since all my work happens in coffee shops or my home office, but that raises tax issues. Plus, if I live locally and pay into the local tax system, then I am eligible for America’s Foreign Earned Income Exclusion that lets me skip out on paying taxes to Uncle Sam on the first $112,000 of earned income.

Pick the right country with the right tax structure, and you can sharply reduce your tax obligations.

2. Where are my daily costs lower?

I mean, if I’m not going to lower my costs and improve my standard of living, then I’m not sure there’s a point to moving.

3. Where do I feel comfortable?

I’ve visited more than 70 countries now. I know what I like. That’s proximity to urban areas, beaches, and mountains. And I like international airports nearby, since I have to travel for my job.

Given a choice, I’d choose a place with all of those present. But at the very least, I want three of the four traits in whatever place I call home (and an international airport has to be one of them).

If the rising cost of living is threatening to downgrade your lifestyle too, I recommend following a similar strategy to me and my wife. We plan on “dating” a few countries before we make a bigger commitment.

Here’s where we’re looking:

Mexico’s Riviera Maya

As I’ve noted, the Riviera Maya is much cheaper than Prague, which means it’s way cheaper than the U.S. And it comes with that upgraded lifestyle.

I’m the kind of traveler who frequents traditional local eateries rather than touristy food traps. In Playa del Carmen I tested them both. I know Playa is a huge tourist draw, and the prices tourists pay are, frankly, not much different than what an American pays back in the States.

But when you’re living locally, you eat at local restaurants where you don’t face gringo gouging, and where the quality of the food is excellent. I hit up a taco shop along Playa’s hugely popular pedestrian ramble known as 5th Avenue. There, tacos al pastor were just $0.69 each. A cold Modelo Negra beer was about $1. A few bucks and you’re well sated.

The real estate, though, is what really had me walking around Playa and continually thinking, “Should I move?”

The condos I saw boasted alluring rooftop pool decks overlooking the Caribbean with bars serving up mojitos and piña coladas. A great place to spend my afternoons working as a digitally nomadic writer.

In Tulum, it’s a much more laidback, high-end, Bohemian-life-carved-from-the- jungle ambiance. But the quality of condos popping up there, the amenities they offer, and the nearby beach clubs my wife would absolutely love, put Tulum on our radar.

Better yet, the cost to buy one is in the $200,000 range (at least as a member of Ronan’s RETA group), which would mean mortgage payments way below my Prague rental costs. Or, if I did rent in Mexico, I could live in luxury for the $1,700 I’m paying every month now…or I could pay substantially less and still live a bit richer than I do currently.

And it’s easy to be an expat in Mexico in terms of the necessary visas. That makes the Riviera Maya potentially quite appealing. So much so, that my wife wants to visit soon to see how she feels about the place.

Portugal

I’ve noted in previous stories I’ve written for International Living that Lisbon ranks as my favorite city in the world, slightly ahead of Barcelona.

I’ve spent days walking the streets of Lisbon and Porto (the hills will cause your butt muscles to cry out in pain). Both cities are beautiful. And both are on the sea, with that coastal vibe I love.

The food is exemplary. I’d trade my daily chocolate croissant and iced latte in Prague for a pastel de nata (custard tart) and a meia de leite (café latte) any day.

Moreover, Portugal is now a major draw for American expats…

I’ve seen reports about a flood of Californians trading the high costs back home for life in Portugal. It’s easy to see why. Lisbon shares a similar, seaside climate to coastal California, but at a much-reduced cost, meaning an urban lifestyle in a cultural capital of Europe hits your wallet substantially softer than an urban lifestyle in the States.

And here’s the thing: Lisbon is far from the cheapest spot in Portugal. Along the northern coast toward Porto, down along the southern coast toward the Algarve, and particularly in the hilly interior covered by vineyards, Portugal offers a dream lifestyle on a budget.

Plus, Portugal has a D7 visa that allows you to work locally. And there is a so-called Golden Visa that grants you rights to live and work in Portugal, and to obtain a passport, if you spend €280,000 on a home. I’m not looking to spend that kind of money yet, but I mention it because it is an option for some—just be aware that buying a home in Lisbon, Porto, and coastal towns won’t qualify.

On top of that, there’s a meaningful tax break for expats that makes it quite the favorable country to call home. Portugal offers a tax break that means expats can enjoy a 20% income tax rate. In some cases, it totally exempts expat income. Better yet, the special rates last for 10 years.

Trading high costs at home for a life in Portugal.

You’d still owe taxes to Uncle Sam. But with the Foreign Earned Income Tax Exclusion, the all-in taxes in Portugal would fall to a pittance.

As such, my wife and I are spending part of the summer in Portugal on a fact-finding mission, poking around coastal areas south of Lisbon. In preliminary research, I found a very nice, large, three-bed apartment, just yards from a long, wide beach, fronting a wide, cobblestone pedestrian street in the Algarve. Cost: $1,300 per month.

I will report back on what I find from my flip-flops-on-the-ground research trip.

Greece

My wife and I love Greece. It was our first vacation destination when we were dating several years ago. We continually talk about returning—possibly to live.

The appeal is self-evident if you’ve ever visited the Aegean nation. I’m particularly fond of the island of Crete. The rolling hills. The olive orchards and vineyards. The quaint coastal towns. The sunbaked and relaxed island living.

Every day, we found small seafood eateries scattered here and there, populated by locals—just our kind of places. The ambiance was always Spartan: linoleum tabletops, plastic menus, sometimes plastic chairs. But when you’re sharing a bottle of surprisingly good and ridiculously inexpensive house wine made locally, and you’re dining on the freshest grilled seafood at crazy cheap prices, the meal is the ambiance. Better yet, Greece now has a digital nomad visa that makes relocating there as a freelance writer far easier than in the past. And there’s a 50% reduction in taxes owed to Greece across your first seven years in-country. Again, a big draw for me.

We’ve long jabbered about the idea of moving to Crete, which we both adore because of its size, its proximity by ferry to a few other gorgeous Greek islands, and because it has a pretty sizable airport…allowing you to get into and out of major European airports without unnecessary layovers. And get this: I found a villa—a villa—near the quaint city of Chania on Crete’s northern coast. It’s up on a hill overlooking the Aegean in the near distance. Three bedrooms across 2,300 square feet. Stunning pool and deck, with a second covered deck pretty much on a cliff, where I’d write and eat every day overlooking the sea.

It costs just $1,400 a month!

This is precisely the kind of upgrade I’m talking about: a cheaper cost of living, but a markedly enhanced quality of daily life. What’s not to love about that?

There are of course dozens of other destinations out there where you can upgrade your lifestyle and escape the worst effects of inflation. IL’s Annual Retirement Index 2022 is a good place to start looking—you’ll find 25 countries ranked and rated on a bunch of categories.

Investments to Protect Your Wealth From Soaring Inflation

Before you pack your bags and head off on your overseas adventure there are investments you can make to hedge against the effects of rising prices.

Own gold: Throughout history, gold has been the asset to own in times of economic or financial instability. This time will be no different.

Gold should fare well as inflation runs hot. Moreover, if we get to a crisis at some point tied to the dollar, U.S. debt, or the Fed’s mishandling of this teetering economy, gold will be the insurance policy that helps protect your lifestyle.

The best way to own gold is physically. But a word of caution: Don’t buy physical gold locally. The markups at most local gold shops are ridiculous. You’re wildly overpaying.

Instead, go online to a source such as Apmex.com or BostonBullion.com, two of the best gold coin/bullion dealers I’ve dealt with personally.

You won’t be able to store your metal with either firm, so you’ll have to take delivery. But they offer the fairest prices I’ve found. (To be clear, while I have used both firms personally, I have no ties to either of them and get no financial benefit for mentioning them to you.)

Own cash: This seems an odd suggestion, but cash is the asset that reprices the fastest.

Inflation worries have already taken down stock prices, particularly the overpriced high-tech belles that everyone once loved. Bond values are tumbling as well, meaning they’re not a safe-haven right now. But cash is.

As the Fed pushes up interest rates, those should show up as higher rates on savings accounts, money-market accounts, and short-term certificates of deposit.

Just don’t lock in anything longer than a month or three so that you are nimble enough to catch higher rates later. There’s also the possibility that the Fed reverses course on its rate hikes later this year if, as seems likely, the economy falls into a recession.

In that case, the markets will move upward again and you’ll want to ease access to your money so you can reinvest in stocks and other risk assets.

However, for the time being, I’d recommend holding your cash in a money-market account or high-yield savings account.

Own I-bonds: These are inflation-protected savings bonds sold by the U.S. Treasury Dept. You can open an account at TreasuryDirect.gov and buy them directly.

These bonds carry two interest rates: fixed and variable. The fixed rate right now is 0%. But the variable rate, which moves with inflation and is reset every six months, stands at 9.62% through October, when it will be reset again for the next six-month period.

That’s one of the best, guaranteed returns you can find right now. You can purchase up to $10,000 in I-bonds every year at the TreasuryDirect website.

You can also buy another $5,000 each year using your tax refund, for a total of $15,000 annually.

I-bonds must be held for at least a year before you can redeem them. And there are minor penalties in the form of reduced interest payments if you deem them between one and five years after purchase.

Own foreign real estate: This is the real opportunity.

Right now, the U.S. dollar is strong relative to most foreign currencies. That’s not a situation long for this world. Once global investors sense that a recession is afoot in America, the dollar will begin to slide.

But while it’s strong, you can use it to buy more foreign currency, which means you can grab more house than you might otherwise be able to afford overseas. (Note, some properties are priced in U.S. dollars, so the dollar fluctuations are moot.)

I would follow the advice of IL real estate expert Ronan McMahon: Grab the right kind of properties in high-demand tourist markets. We are in the midst of what some people call “revenge tourism” as travelers spread their wings again after the pandemic lockdown.

Moreover, we have the Zoom Boom unfolding, in which workers are increasingly choosing a live-and-work-from-anywhere approach to jobs and life. Given a choice, many are picking resort/beachy destinations…which is precisely why I’d want to be a buyer in a place like Cabo or the Riviera Maya, where demand is incessant.

We are in a new paradigm, one I’ve not seen before in my adult life.

I have vague memories of the inflation crisis of the late-’70s and early ’80s, when I was a kid watching my grandmother open a CD at Louisiana National Bank with an interest rate above 13%.

But only now, 40 years later, do I really grasp the impacts that real inflation has on your pocketbook and your psyche. I know prices are now permanently higher, and I know they will continue to climb from here.

Now is the moment to seriously consider a cost-of-living reduction and a lifestyle upgrade abroad, because there is nowhere in America where those two desires can co-exist.

But overseas, the options are boundless.

Jeff D. Opdyke is the editor of The Global Intelligence Letter, IL’s guide to personal finance and investing. Based in Prague, he spent 17 years at The Wall Street Journal and writes on personal finance and investment. Check out his free e-letter, Field Notes at IntLiving.com/FieldNotes.

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