The Rule of 3 and 4: How We Avoid Gringo Gouging in Cuenca Ecuador

How we have kept ourselves in line and stayed out of trouble with costs when in a new country, such as Ecuador.  We actually came up with it before even getting here.  This is a rule of thumb that we have coined and it has helped a lot. You can use this rule anywhere in the world that you happen to live; then you'll know what the real prices happen to be and if you getting gringoed as the saying goes. 

The figures need to be adjusted for inflation.  In 2018 the median GDP household income in the u.s. is $57,000 or about $4750 per month.  In Ecuador it has gone up to $1100 per month, or a bit less than one fifth of the u.s. household number.

It has its roots in the idea that an average Ecuadorian household might have a total income of say $800, Consisting of one low wage worker at $300 and one skilled worker at $500 a month. 

What we do is multiply that by 3 or 4.  Because this is a rule of thumb, it is only one yardstick and one way of seeing whether we’re on track.  It is not a hard and fast rule. 

Anyway, the multiplication gives us a total of $2,400 to $3,200, which is roughly the average income in the North American zone, or something close to that.  That’s our guideline principle.

Now, when we’re shopping let’s say for a house, and we hear that the Ecuadorian market is active in the under $40k area, that makes sense to us, because $40k x 3 or 4 is $120k to $160k. 

So the way we see it is, that when an Ecuadorian is buying a $40k house, it’s like us buying the equivalent of a $120k to $160k in the North American zone.

This is how we stay out of trouble.  You see we need to compare but not directly.  We really need this rule.  And we use it all the time.  It’s a very good rule to flush out skews in pricing too.  For example: If I’m looking at a $100k house, the rule says we should think of it as a $300 to $400k house.  So then, when we’re looking at this house, we can ask ourselves, is this house really worth $400k in the North American zone?  This usually opens our eyes to value or lack of it.

So then, going further with this thought, I’m now saying to myself, while looking at this house, is it worth the four hundred?  Do I really want to spend this much on a house?  You see the difference?

The rule also tells me when something is relatively cheap.  Like when I’m buying tomatoes.  According to the rule, tomatoes at .33 cents a pound translate to .99 cents to $1.32 per lb. Now, to me, that’s still quite inexpensive as tomatoes go for anywhere from $2-$4 lb depending on what city you’re shopping at in the North American zone.

Going further, when I'm looking at a $250 rental, that's a $750 to $1,000 rental, more realistic wouldn't you say?  And what about that $900 condo?  Well, you get the picture.  Unless you're from New York or California. 

So when I look at a refrigerator for $900, I’m really looking at $2700 to $3600, so it better be a pretty darn good fridge.  Could be why I haven’t bought one yet.  Wouldn’t be able to get away with that if it wasn’t for the fact we’re living in the Andes.  LOL.

Update October 2012 - We finally broke down and bought a refrigerator. We purchased a brand new HACEB after doing much shopping, negotiating, bargaining, and more shopping around town. We're thinking we got the best deal in town. So far it has been working great!

Again, the rule keeps me sharp and on my toes.  When we first came to Cuenca, we would stop at the window of the real estate office, and look at lots going for $50k.  I would briefly tell myself the rule says that’s a 150k or 200k lot.  That seemed too high to me, and out of line. This keeps me looking and searching for a way to look for the real price.  

You see, because of the rule, I don’t really have to be all that good at speaking Spanish and ferreting things out right away, not quite yet anyway.  It’s enough to keep me wondering and searching.  And what is that worth? When I keep playing with this rule, it’s amazing to me how well it makes me appear smarter than I look.

Like when I’m just landed in Cuenca and I see a lunch place for $5.50. Well that’s $16.50 to $22.  Too much!  It’s not an all you can eat continental style or Chinese buffet in Atlanta.  It’s just lunch at a coffee shop.  The rule kept me out of that place even before I found out from other expats that the food was just o.k. and the service was lousy.

You too can avoid gringo gouging using this rule of thumb and be smarter shoppers.  We can be responsible expatters.  So when I’m at a $1.50 lunch place in Cuenca, it’s a six dollar lunch, ok, a reasonable frugal lunch, not bad.

You might want to bookmark this article as we’ll be referring to this rule of thumb in future videos and posts; well, we refer to the rule often between ourselves, and now we can all be on the same page!!