Thursday, January 14, 2010

Everything's so cheap there, innit?

In talking to family and friends about our new life in Canada over the years, one of the most pervasive misconceptions I've tried to squash, with limited success, is the thought that you can compare prices in another country by using the currency exchange rate.

A typical conversation might go along the lines of "You bought a new bread maker? ... How much? ... Eighty dollars? ... Wow, that's cheap!" And I can hear the mental gears dividing by two (or thereabouts) to come up with forty pounds for something retailing in Curry's at (say) eighty or so.

Yes, of course it sounds cheap.

And this does work when you take a vacation. If you're holding a fistful of hard-earned sterling and exchange it for dollars, then, yes, things bought over here will often seem cheap.

But if you are trying to price up the cost of living in a new country, then this approach is not just misleading, it is downright dangerous.

Here's the thing. Once you are living and working here instead of there, you are no longer earning sterling, you are earning dollars. Sounds obvious when you say it like that, doesn't it? And yet it is so simple that it is easy to overlook, or even to dismiss it as irrelevant.

But if you are trying to anticipate what your financial position will be when you move, my advice is quite simple: forget the exchange rate. It will call you with seductive siren tones and leave your household finances in tatters on the reefs of shattered expectations. The only thing that matters is how much you earn, and how much you spend. The latter must not exceed the former. And (here is the important bit) you cannot meaningfully forecast either by applying the exchange rate to your current situation.

When you make your home in another country, expect your whole profile of income and expenditure to change.


On the income side, it's easy enough to get a sense of what your gross income might be, but out of that will come taxes and various other deductions that are likely to be substantially different from what you're used to. And Canadian tax returns are a whole other topic for another time.

Expenditure will be different too. Not only will familiar items like utilities cost different amounts, but there will likely be completely new things that you never had to worry about before. Just on utilities, for example, we used to know how much we paid for power, water, and phones. Now we have all those plus cable, internet, cell phones and gas. And a hefty bill for logs each year.

Even simple things like groceries will be all up the creek. Some things seem "reasonable" or "normal" to us now, but there are things that are truly costly. For example, we find all things dairy to be incredibly extravagant without the European farm subsidies.

And then your own attitudes to spending may well change too. We drink far less than we used to without the Guernsey attitude that "you can't possibly be having fun unless you're getting drunk".

On the other hand, we happily shell out far more on charity donations than we would ever have done in the past. There is a strong culture here of giving, both time and money.

Everything is not cheap here. Financially, we are far worse off than we used to be, but we have cheerfully swapped that for a way better lifestyle. The brutal truth is that many families we know struggle to make ends meet, and need multiple incomes to be comfortable.

The silver lining is that there will be ways to make things easier. Ask around. Get to know where locals "in the know" shop. For example, we make trips every couple of months to a wholesale outlet to buy things like laundry detergent and other household items, juice, and frozen goods in bulk at a fraction of the price of the supermarket.

So, expect everything to change. Unless you are able to do some exquisitely detailed homework, the only way to really find out is to live it for a year. Go through a complete cycle of earnings, bills, and taxes. Discard wishful thinking and keep track of reality.

And, whatever you do, forget the exchange rate!

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