Living Off an ESL Salary

You want to teach ESL abroad, but are afraid the diminished salary won't afford you the comforts you enjoy back home with your current salary? I'm speaking to those of you who want to get out of your dead-end job, or take a year before transition to a new career, or someone that just needs a change/adventure. 

Or perhaps it is the equivalent or maybe even more than your current salary, but you are afraid that you may not be able to live comfortably on your own at an ESL salary. Now, I'm talking to the recent grad who has been living at home or on loan/parent funded apartments at school. 

Well this is where my BA in Economics finally comes in handy. I am going to show you how you can be sure, or not, that you will be able to live comfortably on your foreign salary. 

First you need to realize intrinsically is, wherever you will be teaching, unless its through Fulbright or something similar, you will be paid in a foreign currency. 

Ok so wow, I could make 2.1M KRW a month teaching in Korea. Plop that amount in a currency converter to see what it is in USD anddddd its about $1,8750/month or about $24,500 a year. That's basically a $11/ hour full-time job back home. Yeah... I made more than that an hour working part-time undergrad internships. 

But wait. Its not that simple.

As you may, or may not have known, simple monetary conversions do not really paint the full portrait when it comes to the comparability of a salaries across different economies and markets. You need to think about the scale of the economy and market in which you will be living in. Think Eurotrip. Different currencies have different purchasing power in their own markets and other economies. 

You can do some rough research on Numbeo. Search your home country against a foreign country and you will be able to see comparable prices between your domestic currency and foreign currency for certain goods like utilities or milk.

 For example, in most countries, items likes Levis will be a lot more expensive while things like healthcare and transportation are usually significantly lower. 

However, that is a lot of information to take in while still trying to keep a clear perspective on how your foreign salary will be compared to a domestic salary back at homr. Wouldn't it be great if you could see what your foreign salary is comparable to, as if you were living at home in your country?

Well you can with some simple math. You see there is something in Economics called PPP (Purchasing Power Parity), or...

"An Economic theory that estimates the amount of adjustment needed on the exchange rate between countries in order for the exchange to be equivalent to each currency's purchasing power".

Purchasing power is the keyword, or what your foreign salary can buy you in that foreign economy. You might get paid less when you convert your foreign salary back to your domestic currency, but it might be able to buy just as much as you would with a higher, domestic salary. 

So using the concept of PPP you can calculate how much your foreign salary is in domestic dollars, incorporating not only the exchange rate, but how much you actually make relative to your domestic market.

Color Coded PPI -2003*

How? Well let's review. We said in our example that you can make 2.1M KRW a month teaching in Korea.  That's a year salary of 27,300,000 KRW a year (I incorporated the extra month bonus you are given after completion of the contract, so 2.1M*13 instead of 12 for anyone that is checking my math). 

Ok so what is that in USD? Roughly $24,500 a year. Again, a perhaps laughable amount back home. But wait, now we have to incorporate the PPP. But how?

Go back on Numbeo to compare the CLI (Cost of Living Index) of your home country and the one you are looking to teach in. You will find in the the extreme right column the (LPPI) "Local Purchasing Power Index", a derivative of the PPP. 

Take the LPPI of the country you are interested in, say Korea, which is 102.13, and divide it by your domestic country's LPPI, for example; US = 136.50.
Subtract your answer from 100%. 

Mathematically it will look like this:

100% - (Foreign LPPI / Domestic LPPI)

...or 

100% - (102.13 / 136.50) = 0.25, or 25%. 

Now you apply your percentage answer, in this case 25%, to your domestic salary you derived from your foreign currency conversion. 

27,300,000 KRW = $24,500 (roughly). 

So $24,500 * 0.25 = $6,125. 

Add the product to the original domestic salary to your LPPI compensated salary and you get a total of $30,125/year in foreign purchasing power.

$24,500 + $6,125 = $30,125 

In other words, you may be making $24,500 USD, but in the Korean economy  it'll be like making $30,125 which is your AAS (Adjusted Abroad Salary). 

But is doesn't stop there. The Korean salary is tax free for US citizens for the first 2 years. So while all your friends back home are watching about 20% of their salary disappear to the gov, you are spared. 

$30,124 * 0.20 =$ 6,025

That means you'll be keeping another $6k a year that everyone back home is not. Add it to your domestic compensated salary so you can relate to what your salary would really be like back home before taxes. That comes to...

$36,150. 

There is one more perk. Because $36,150 is not an amazing salary, I would certainly not want to move out of my parents house on that alone. However, in Korea, and many ESL countries, your housing is provided... for free. 

In my home city of Philadelphia, on average, rent for a studio apartment per month costs roughly $450/month. 

So,

$450 * 12 = $5,400

That's $5,400/year that you are not paying that your friends are if they are living alone.

So add that to your compensated salary and you get....

$41,550! Which is your AAGI (Adjusted Abroad Gross Income) before taxes, compensated for variables like free housing and tax exemptions, and PPP/LPPI. Different from the AAS because we include all other variables like rent and tax. 

The cost for a car, and all composite expenses (which you will not own) will cancel out from the lower price of public transportation, so that doesn't come into the calculations, at least usually.

So $41,550 is what your 27,300,000 KRW is really worth in Korea. Even though the 27,300,000 KRW only converts to $24,500.

Amazing right? Yes, but there is something you need to remember. Just because it may feel like you're making $41,550 in Korea, when/if you come home, at the end of the day, you still only made $24,500 back in the US. 

Not only that, but you need to remember that this is your AAGI (Adjusted Abroad Gross Income), as if you were paying rent and taxes domestically. Which means for the $41,550 to be relevant, you need to think in terms that this is your gross salary (before taxes), and you are deciding to rent a studio apartment for it to hold any comparison to your domestic economy.

 hat's how you have to think about this new income you have calculated. Is it a financially sound number back home for this kind of lifestyle?

Moreover, if you come home, and want to come home with some money, save a decent amount, because here, $24,500 is still not a lot of money. 

Remember though, this is the compensated salary for THIS example. You need to do that math yourself to see what yours will be. If you are unsure or would like help calculating your adjusted salary, leave a comment and I will try my best to help you. 

Cheers