(MONEY Magazine) – Three years ago Tim George, now 33, was making $17,000 a year teaching world history to 10th-graders at a private high school in Honolulu. ''Besides the terrible pay, I was putting in 60-hour weeks because I also coached the track team,'' he recalls. His wife Jane, 34, faced similarly bleak career prospects. A teacher of English as a second language, she was job hunting and, she says, ''looking at getting $18,000 in a public school.'' So in the summer of 1986 the Georges decided to escape to an unlikely haven -- Tokyo, the world's most expensive city, where three-bedroom apartments rent for as much as $10,000 a month and steak costs $83 a pound. But the Georges had advantages over most of the 14,000 Americans who work in the Japanese capital. Both were old Japan hands: Tim first lived there for four years as a boy, while his father was marketing manager for Minnesota Mining & Manufacturing. Jane's initial visit was a 14-month sojourn as a student of Japanese in 1976. Between them the couple had spent 15 years in Japan. Says Tim, who now earns 5,745,699 yen a year, or about $46,700, as a teacher at Tokyo's International Education Center, one of Japan's best-known language schools: ''We'd both taught here before too, so we knew we could make enough to live comfortably and still save something.'' That financial feat is usually impossible for American residents of Tokyo. Although U.S. firms typically pay extra compensation to American employees in Japan -- for example, corporate managers make an average of $199,200 a year -- steep living costs still stop most expatriates from saving. The problem has worsened over the past two years, as the dollar has dropped 19% against the yen. Today, according to the U.S. management consulting firm Runzheimer International, an American family of four would spend a stratospheric $196,923 a year to maintain the same standard of living in Tokyo as they could enjoy for $50,000 in the median-cost U.S. city. The Georges beat Japan's high cost of living by going native. The couple rent a two-bedroom stucco house for $1,172 a month -- not high by Japanese standards -- in Kamakura, a residential suburb 30 miles south of central Tokyo, to avoid the city's lofty housing costs. Like most Japanese, they travel locally by bicycle or on foot rather than in an expensive-to-maintain car, and they have virtually expunged red meat from their diet. They buy their food at Western-style supermarkets and traditional Japanese vegetable stalls. Eating out means spending $20 at most for a meal at a local Chinese restaurant or at a Kentucky Fried Chicken outlet, rather than an extravagantly priced dinner at one of the Tokyo restaurants favored by foreigners. And the couple keep down their utility bills by following the Japanese custom of heating only the room they are occupying during the day and turning off all heat at night. The Georges have one other factor in their favor: as teachers in a nation that reveres education, they earn 67% more than the $28,031 a year that the average American teacher makes. Living as the Japanese do, combined with their relatively high income, has enabled the couple to save $39,600 since their move to Japan in August 1986, despite the birth of their daughter Emily last February. Now they are mulling over how to invest that sum to realize three financial ambitions. Tim, a scholarly, gentle-voiced man who makes his points with an academic's carefully chosen words, lists these goals: ''First, retirement funding; second, buying a house when we get back to the States; and third, education for Emily and any other children we might have.'' As new parents, the couple are worried too that they lack adequate insurance coverage. Japan's national health insurance would pay 60% of Tim's salary for up to 18 months should he become disabled, but neither he nor Jane has life insurance. The Georges have yet to set a date for their return home, nor are they sure about resettling in Hawaii. Only Jane has roots there: she was raised in Honolulu by a now-retired optician and his homemaker wife. Serious of mien and forthright in speech, Jane has a self-possessed independence that early on sparked an interest in living abroad. In 1976, at age 21, she spent a year in Tokyo learning Japanese and covering her rent by teaching English for $7 an hour. Jane went home in 1977 and two years later got her B.A. from the University of Hawaii. She returned to Tokyo in 1979 to join the faculty at the International Education Center. There she met Tim, a Phi Beta Kappa who graduated in 1977 with a degree in American and Japanese history from California's Stanford University. The following year Tim left the center to teach English at Zhejiang University in Hangzhou, China. In 1981 he returned to Stanford, where he helped put out a monthly newsletter on Asian affairs. But he kept in touch with Jane, and in 1983 the two were both pursuing master's degrees at the University of Hawaii, she in teaching and he in modern Japanese history. Gradually their friendship turned into romance, and they married in 1985. A year later they were back at Tokyo's International Education Center, where Jane taught English to secretarial students and Tim began the job he still holds, teaching Japanese businessmen, bankers and government bureaucrats, many of them bound for overseas offices, how to work with Westerners. He coaches them in such skills as negotiating contracts and debating management issues. And, most important, he warns them of the culture shocks that await them in the U.S., from the custom of tipping -- virtually unknown in Japan -- to the prominence of women in business and the fact that refusing to employ people because they are black is illegal. Through a Japanese co-worker, the Georges found a furnished sublet for $365 a month -- $600 below the going price -- in the northern suburb of Wako. With an income of $80,000, the couple had saved $31,000 by January 1988, when Jane went on maternity leave. For 14 weeks she collected 60% of her salary from national health insurance, which also paid $1,550, half the cost of Emily's birth. With the baby's arrival, the family needed more space. Through Japanese friends, they found their house in Kamakura, a bustling town of 176,000 that has several historic Buddhist temples and Shinto shrines. The house was partly furnished, so they bought only a washer-dryer ($937), a bed ($569), a dehumidifier ($390) to ward off mildew from Japan's damp summers, and drapes ($109). Now settled in, the Georges enjoy an outdoorsy social life, hiking in the hills above Kamakura and in summer holding backyard barbecues or body surfing on a nearby beach with their friends, an interracial mix of fellow expatriates plus Japanese colleagues and neighbors. Of their relationships, Jane admits, ''It is hard to become really close with the Japanese because you don't share the same cultural understanding. It's possible to be friends -- but not buddy-buddy.''

The couple's recreational activities do not cost much and, to date, neither does their daughter: so far the major expense has been keeping Emily in Pampers. She goes through three boxes a month, yet even at $23.30 a box (see the table on page 99 for comparisons of Japanese and U.S. prices), Pampers are cheaper than the local diaper service's $56 weekly charge. Borrowed baby furniture, hand-me-down clothes and breast-feeding have kept the cost of the rest of Emily's care to a minimum. Government insurance will cover up to 80% of the bills if she becomes ill, although her parents must pay $41 for each of her trimonthly checkups. But as the baby grows, so will her expenses. If Jane returns to work full time, she can put Emily in a government-sponsored day-care center. The fee is based on income, and the Georges would be charged the highest rate, $340 a month. The couple may face an even stiffer bill once Emily starts school: at least $10,000 a year for tuition if they enroll her at an international school where she can get an American education. Partly to avoid the tab and also because they want Emily to be bilingual, Tim and Jane might send her to a Japanese public school -- but only for the elementary grades. Says her father: ''We don't want her to go through the Japanese system of hellishly rigorous exams to get into one of the good high schools that lead to university.'' Besides benefiting from low baby bills, the Georges could afford to save during the past year because Japanese income taxes took a mere 11% of their joint earnings. (As expatriates, each of them can exclude up to $70,000 of foreign earnings from U.S. taxes, so they owed nothing to the Internal Revenue Service.) The couple are uncertain about the impact of the tax overhaul that went into effect in Japan in January, dropping the national tax rate from between 10.5% and 60% to between 10% and 50%. ''Our income tax liability should go down, which is nice,'' comments Jane. But she is wary of how the 3% national sales tax due to begin in April may affect the family budget. The Georges consider the coverage they received for Emily's birth a good return on the $916 they paid last year for national health insurance. But they are irked that they had to contribute $3,558 to Japan's social security system. Tim points out that he and Jane cannot collect any retirement benefits unless they work in Japan for at least 15 years. Sure of coming back to the U.S. long before then, the couple have kept their savings in dollar-denominated accounts, thereby insulating themselves against currency fluctuations. Until five months ago, the bulk of the money was in a 6.5% credit union savings account at Honolulu's University of Hawaii. In addition, they formerly sent $100 a month to the IDS Strategy-Aggressive Equity and Strategy-Equity Portfolio mutual funds. But the funds crashed along with the market in October 1987 and never fully recovered. Last September the Georges closed all of their U.S. accounts and deposited the entire bundle in a cash-management account at a Merrill Lynch office in Tokyo. The CMA holds $26,974, stashed in three-month CDs earning 8%, plus a money- market account paying 7.6%. They have another $12,626 in Japanese bank accounts, where deposits earn virtually no interest. But the accounts are handy for paying bills through automatic deductions, the custom in Japan since few businesses accept checks. In the past year, the couple have added more than $8,400 to their savings despite the loss of Jane's salary. Now she is tutoring students in English at home for $40 to $80 an hour, depending on what the student can pay. While welcome, the extra money increases the Georges' concern about how best to deploy their savings. As their CDs near maturity, the couple still feel uncertain about switching into stocks or bonds. Japanese securities make Tim edgy. ''I've learned from my students who work for the big brokerage firms how wild the market is here and how much insider trading goes on,'' he declares. Consequently, he prefers investing in U.S. assets but hesitates to act without professional advice. Says Tim: ''Our financial circumstances are so favorable right now that we want to make sure we're taking the best possible advantage of the situation.''

BOX: Bottom Line

During the 12 months covered below, Tim and Jane George weathered the cost of their daughter's birth plus a move and spent $2,005 on furnishings for their new home. Yet they still managed to save 13% of their income. That comes close to the 16.8% that the average Japanese saves and far outstrips the U.S. savings rate of 4%. Quips Tim, ''Who says Japan is pricey?''

INCOME Tim's salary $46,713 Jane's earnings and maternity benefit 12,200 Government insurance benefit for Emily's birth 1,550 Interest and dividends 1,293 Tax refund 30

Total $61,786

OUTGO Savings $8,466 Rent 8,353 Food 7,846 Taxes 6,965 Vacations 5,000 Medical expenses 4,214 Moving expense 4,147 Social security payments 3,558 Entertainment 2,469 Utilities 2,427 Home furnishings 2,005 Clothes 1,500 Gifts 1,200 Household maintenance 1,149 Bike expenses 859 Commuting costs 656 Contributions, dues 650 Miscellaneous 322

Total $61,786

ASSETS Savings $39,600 Personal property 4,328

Total $43,928

LIABILITIES None

Total None

NET WORTH $43,928

BOX: What it costs

To illustrate the sticker shock that Americans experience in Japan, here is a comparison of prices in Tokyo and in Atlanta of various goods and services:

Tokyo Atlanta

Steak (one pound) $83.30 $7.99 Pampers (box of 48) 23.30 11.39 Meal for two at Kentucky Fried Chicken 23.00 14.03 Movie ticket 14.00 4.50 Chicken (one pound, deboned breasts) 7.50 3.99

Pair of pantyhose 6.65 1.49 Taxi fare (two miles) 6.00 3.00 Cheerios (10-ounce box) 4.60 1.79 Apples (one pound) 2.50 .88 Milk (one quart) 2.50 .99 Orange juice (one quart) 2.50 1.29 Pack of cigarettes 2.00 1.32

Subway ride (30 minutes) 1.65 .85 Morning paper 1.15 .25