How much should I earn… abroad? Money and the Countries

“Divitiæ bona ancilla, pessima domina” (Wealth is a good maid, a bad mistress). And you can’t make “good use” of collaborators (money), if you don’t know what the collaborators can do and how many of them you really need to accomplish your goals. This post is not about money in general, but rather I’ll try to make clear how to compare countries by money:

• “how rich” I will be, trasferring my money (with myself!) abroad?
• how much should I earn if I decide to move to another country, maintaining the same standard of living?
• “how rich” I will be when, working abroad, I’ll travel or come back to my actual country?

Let’s consider this one a deepening of one of my first posts, Here today to STAY! (…or not?), where I wrote about the decisional process in case you are evaluating to move abroad.

Prerequisites: awareness of how much I need to live (average monthly costs) and how much I earn now (or how much I’d like to earn to live my realistic ideal life).

Reading the following data and calculations, please remember that it’s just an example, I’m writing this post at the beginning of 2023, so please focus on concepts and process, rather than on numbers.

Why generic rankings are not enough

You may just want to have a quick look at those generic rankings, like this “Comparison of worldwide cost of living“, or searching for Purchasing power parities (PPPs are the rates of currency conversion that try to equalise the purchasing power of different currencies, by eliminating the differences in price levels between countries, but the basket of goods and services priced is a sample of all those that are part of final expenditures: final consumption of households and government, fixed capital formation, and net exports… it could be useful as a comprehensive index about a country, but our goal here is to understand how much we should earn abroad, we’re not interested in some generic statistics or geopolitics).

Most important: we’re evaluating a specific (range of) salary, not comparing for example a random one or the median (or even worst, “the average”). So it doesn’t make too much sense in this context to compare countries by salaries or looking at the Purchasing Power Index by Country, since it’s absolutely not automatic our “transition” in another system: if you are a medical doctor and in your country you earn the double compared to the median salary, you can’t expect to automatically adjust your purchase power to the one listed in these rankings, since maybe your new salary as a MD in a new country could be not 2x anymore, but 1,5x the median salary. So what we can do, instead, is calculating our “desired adjusted salary” looking at the price levels indices. Only then, we can better evaluate an offer, if we are interested in make comparisons with our current standard of living (e.g.: keeping same spending habits, travelling, buying certain things, eating out and so on).

Price level indices

I think there’s no need to remember it again, but just in case: please make sure to use “the most official and reliable” sources. In this case, looking at the data from “Price level indices” in OECD, you can see on the left (e.g.: India, Turkey) the countries where goods and services cost less, on the right (e.g.: Switzerland, Norway), the countries where you have to pay more for the same kind of goods/services.

Now I can write for hours on the sense of these numbers, for example: are we saying that, for the same precise thing we pay 133 in Switzerland and 38 in India? Well, we are trying to make comparisons between completely different places, so probably the quality could be different. It’s like saying that prices of cars are increasing and now an average car costs much more than an average car during the 80s. Sure there’s the inflation, but it’s also true that the standards changed, the quality of life (and products) is generally increasing, so please keep it in mind when you look at these indexes. I’m not saying that there’s a perfect correlation between prices and quality in different countries, but probably you will recognize that countries on the right are places where there’s generally a high quality of life, compared to the ones on the left.

What it’s really important to highlight, however, it’s that those are aggregated/average indices, what does it mean? That they consider the average person in some average conditions, but there will be (sometime huge) differences between people needs (e.g.: if you have children, this could really have an impact) and within the same country (living in a small town in the southern countryside can cost much less, compared to living in the heart of the financial capital). That’s why I really suggest to have a deep closer look at the sub-indices, for example (this time looking at the EU-27 contries) it’s possible to see consumer price levels by category:

At this point, you’re a master in reading numbers: it “Food” shows 168 for Switzerland (the highest) and 69 for Romania (the lowers), it means that in Switzerland you have to spend more than the double for the same quantity and kind of food compared to what you spend in Romania. Since you understood the approach, you can now search for detailed data and do the math yourself. One of the easier table I can suggest (for EU-38 zone) is this one by the Swiss Federal Statistical Office, that also provide some other data visualization on the same topic, like:

OK, nice those numbers, but… how do I use them?

Now that we have all the updated indices, how do I calculate how much should I earn to mantain the same standard of living? What I suggest is to use the indices from OECD data if you have to compare across countries outside EU-27 zone, otherwise better use the Eurostat ones. This is the simple math:

“New Salary” = “My current salary” : “My country PLI” x “Desired country PLI”

where “New Salary” is the desired salary you should have in your new desired country and PLI are the price level indices (of the country you now live in and of the country you are evaluating to move to). Examples:

• I live in Italy where my current (net monthly) salary is 2.000€, how much should I earn if I want to move to Germany with the same standard of living?
  (2.000€ : 101,6) x 108,1 = 2.128€
• I live in the US where I earn 3.000 USD net per month, how much should I earn in Spain to keep the same standard of living? 3.000 USD (that are equal to 2.738€ at the time I’m writing this post)
  (2.738€ : 125) x 78 = 1.709€

Is it really everything so simple? Of course not, since there are other variables you should know and include. Some of them, for example, are the costs related to some insurances that are mandatory or strongly suggested in some countries, specially if you’re moving from a country where public health cover almost everything. So please remember to do some research on official websites and add those cost (e.g.: health insurance) to the result.

So will I be richer or poorer?

As someone wiser than me said: “Everything is relative”. You can evaluate to move to another country to earn more, but there’s a backfire if you already have some savings: your assets will be worth relatively less, your previously accumulated savings will allow you to buy less, precisely because the prices are higher. On the other hand, if you decide to move to a country where the prices are lower, it can be a good move for your retirement, to enjoy your savings of a lifetime with a multiplier (let’s say your million accumulated in Norway will have the same power of 3,4 millions if you go in Indonesia) but if you go there at a young age, probably your earnings over there will be enough to live a decent life, unless you want to travel to North Europe or come back after 20 years in Norway.

Lastly, if you want to compare your salary within a Country (you can use it to check if it will be for example more or less than the median salary and how distant from it), try this:

Hope this post helped you. In case of questions, just write a comment 🙂