Three Differences Between Being Frugal And Being Cheap

It’s a fine line to walk between frugality and cheapness.

I’ve always tried to make sure that I stay firmly within the realm of frugality, as being cheap is a slippery slope that can lead to someone being miserly and miserable.

But what exactly is the difference between frugality and cheapness? 

Are they not one and the same?

I believe there are definitely differences – some significant and some subtle – between the two, and I’m going to go over a few of the major differences today.

The point of this article is to define the border between the two so that you’re able to live a happier, more fulfilled life, all while still spending substantially less than the average consumer.

Price And Value

One of the biggest differences between being frugal and being cheap comes down to price and value.

Price is what you pay, but value is what you get in return for your money.

Value gives context to price. Without knowing value, it’s nigh impossible to know whether or not the price of something is reasonable or appropriate.

But being cheap tends to cause one to lose sight of this.

Essentially, being cheap means one focuses almost incessantly on price, while being frugal means one focuses far more on value.

While spending no more than necessary is a hallmark of my views on budgeting, the bottom line is almost never just price.

Instead, focusing on value is what I’ve aimed to do whenever I’ve decided whether or not to spend money.

In fact, I almost always use the words “frugal” and “value” to complement one another when I write about saving money and improving happiness.

Being cheap comes down to being penny wise and pound foolish.

It reminds me of a few years ago when I was shopping for a 49cc scooter to get around town.

I could have picked up a new Chinese scooter for ~$800. Or I could have bought a used Honda for ~$1,000.

Someone who’s cheap would automatically choose the Chinese scooter, as it’s $200 less.

Being frugal, I chose the Honda.

The problem is that the Chinese scooter would probably only last 1/4 as long, meaning it’s far more expensive in the long run. That’s not even to mention the ongoing reliability issues that would certainly add up to a lot of time and money wasted, in addition to all of the frustration in one’s life.

When you’re already saving a ton of money relative to what you otherwise could be spending (assuming you’d get around by car), scraping the bottom of the barrel to the point of diminishing returns is nonsensical.

If the only thing you’re concerned about is spending the least possible amount of money in life, you may as well go pitch a tent in the woods and escape society.

Of course, you’d probably be miserly and miserable at that point. And alone.

But frugality isn’t about just spending less than anyone else. 

Frugality is about maximizing value in one’s life. 

It just so happens that spending less often works in tandem with maximizing value because much of the improvements in one’s happiness and personal fulfillment come about very early on in the spending chain.

Once you’ve already maximized value at the exact intersecting point of spending the least, you’re done.

Being cheap would mean that you’d attempt to still spend less, even if it means sacrificing value. And that’s just not smart in the long run, as you may end up spending more than you otherwise would have.

Plus, you’re probably going to sacrifice time and peace of mind, which both have a cost. But being cheap only focuses on price, ignoring all of the related factors that spending the least amount of money can impact. One’s time and happiness can be deemed almost worthless if one is cheap enough, which is obviously just plain silly.

Affecting Others Around You

There’s another major difference between being frugal and being cheap.

Being cheap affects others around you, often negatively. Being frugal should not do so. 

For instance, leeching off of others in any way would be being cheap. Taking advantage of other people’s kindness, especially in order to save money, is definitely being cheap.

Being frugal means you’re fair. You aim not to take advantage, nor do you aim to be taken advantage of.

A good example of this might be the two-bedroom condo I split with my former significant other for years.

Claudia and I rented a two-bedroom place because she has a son that’s still living at home. And so although a one-bedroom place would have suited just the two of us okay, that plainly wouldn’t work for three of us.

Being cheap would have meant I would have tried to negotiate a lower price of rent (instead of paying 50%), as the second bedroom was necessary for her son (who isn’t my son).

That would have created resentment and conflict, at the very least.

But I paid 50%, as we were in a balanced and committed relationship. We were already being frugal by living in a smaller two-bedroom place, avoiding a larger home in the process. The place was already a good value. To scrape the bottom of the barrel and try to take advantage of the fact that Claudia has a son would have negatively affected our relationship and her view of me, and it would have just been totally stupid.

When you’re frugal, you aim to take a balanced view on spending, accounting for how others feel about money and spending.

One’s life, spending, and long-term financial goals do not exist within a vacuum. One should always account for how their frugality might impact others around them. If there’s a strong negative correlation between one’s spending habits and the quality of their relationships around them, that’s something to honestly investigate.

Frugality is about spending the least while simultaneously improving value the most, but it’s also about being fair and balanced. Having a full bank account and an empty life around you will not serve you well over the long run.

Quality Of Life

I saved the best for last.

In my view, the biggest difference between being frugal and being cheap comes down to one’s quality of life.

Being cheap negatively impacts one’s quality of life, while being frugal can and often does improve one’s quality of life.

In the end, all of the saving and investing that should add up to financial independence is designed to improve one’s happiness, personal fulfillment, and quality of life.

Otherwise, what’s the damn point?

If you’re spending less but miserable, you really need to ask yourself where you went wrong.

I spend far, far less than I used to. There’s a 35-year-old Jason in some alternative universe that’s still living and spending like I used to, and he’s chained to the 9-5 grind. And he’s unhappy.

But I spend a fraction of that alternate me. And I’m far happier than him. I know this because I’ve experienced both sides of the coin.

But spending less is often not simply about spending less; it’s about maximizing value, happiness, freedom, and personal fulfillment. It’s about living a holistic lifestyle that builds in a constant self-reinforcing loop of improvement.

This is why I started my “It’s Not About The Money” series.

Most of my everyday habits and activities aren’t really about saving money at all. Instead, much of what I do is about maximizing happiness. It just so happens that spending less fits in with that theme.

But there is a point of diminishing returns, where spending less does become kind of a competition with oneself (or with others, where there’s a constant comparison occurring). At that point, spending less is almost completely about spending less, happiness be damned.

That’s a huge mistake. 

I actually recently almost fell into this trap myself.

I started investigating the possibility of saving money on my internet bill by cutting out the broadband (i.e., canceling Comcast’s wired connection) and instead using my Cricket Wireless plan to create a full-time hotspot with my iPhone 4s.

Now, this would save me something like $30/month in the process.

But after looking into it, and reading through the numerous trade-offs (slower speeds, high-speed data caps, the possibility of overheating my phone, relying on one source for both my phone and internet, etc.), I realized that I would be dramatically negatively affecting my quality of life to save just 30 dollars or so per month.

The Internet is one of the best luxuries in modern-day society, in my view. And it’s honestly worth much more than I pay for it, which speaks back to my initial point on price and value. If access to the Internet all of the sudden doubled overnight, it’d still be a tremendous value.

Plus, it’s a bit of an investment for me, with an incredible ROI. I use it to not just do things that most people use it for, but I also use it for business/professional purposes.

And due to my freedom and penchant for reading, I probably spend far more time online than most people.

Said another way, I get out more than I put in.

I already have the base package that Comcast offers, and it’s on a promotional special. To try to scrape the bottom of that barrel and make a huge sacrifice in an area of my life that provides a lot of personal happiness and value would be moving very quickly from frugal to cheap.

That’s a slippery slope. Be careful not to start sliding.

Conclusion

I pride myself on being frugal. I’m not ashamed in the least. If anything, I think most members of developed countries should probably take a good look at their own spending and consumption to see if they’re proud of their everyday habits.

But my pride would disappear if I became cheap. In my view, there’s nothing about being cheap that’s admirable. I’d be less happy and less personally fulfilled. And I’d be more alone, as others around me wouldn’t (rightfully so) put up with it.

I think a good litmus test really comes down to quality of life. An honest assessment about whether or not one’s spending affects their quality of life positively or negatively should allow one to start to deduce whether one is being frugal or cheap.

Being frugal has completely changed my life for the better. It’s allowed me the capital necessary to buy shares in wonderful businesses, which has resulted in the portfolio that now generates five-figure passive and growing dividend income on my behalf.

But I’ve tried to avoid being cheap. And in the process, I’ve developed a life that’s, overall, full of happiness and savings.

How about you? Ever toed the line between frugality and cheapness? How’s that worked out? 

Thanks for reading.

Image courtesy of: Sira Anamwong at FreeDigitalPhotos.net.