On this episode of How To Money, Matt and Joel explain “arbitrage” and how we can apply this business principle to our own personal finances so we can be “the CEO of our own lives.” Arbitrage is when businesses will buy assets for cheap, then turn around and sell them for a higher price. It’s not uncommon to see people turning to “retail arbitrage” as a side hustle, browsing through thrift stores for the most choice pieces, or going to auctions and getting antique furniture dirt-cheap, and then selling them through online consignment shops at a mark-up. Having an arbitrage mindset can lead to a lot more than just a side hustle, though; it could save you money and make you money, if you do it right. But like many rewards, it doesn’t come without risk.
Retail arbitrage might be the most common, but it’s far from the only area in life we can make or save money. House-hacking is a good example of arbitrage, where you might purchase a house with more bedrooms with attached bathrooms than you personally need, so you can rent out the rooms to roommates or on Airbnb. When many jobs went fully remote due to the pandemic, a lot of people tried geographic arbitrage, where they moved to a cheaper part of the country to save on housing while still making the same income. And most people take advantage of investing arbitrage, where instead of paying off a significant debt as quickly as possible (like, say, a mortgage), you pay the minimum every month and invest more money into your retirement accounts. In the long run, you’ll make more money than you’d save on interest, so this is a smart move.
Of course, it’s important to have some knowledge about what you’re getting yourself into. You might not be very good at nosing out a deal on a midcentury couch if you don’t know anything about vintage furniture. A good way to start might be in an area you already know something about. Another thing to keep in mind is that arbitrage, like most business principles, carries with it a certain amount of risk. Markets fluctuate and react, and it can be all too easy to get excited about an opportunity, over-invest, and lose everything when it falls flat. Your window for opportunity might be narrow, as well: For example, a lot of companies made geographic arbitrage a lot harder to take advantage of when they started tying pay rates to where their employees live. But once you have an arbitrage mindset about the world around you, it’ll be hard not to see the opportunities to both make and save a lot of money. Learn all about it on this episode of How To Money.
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