If you have a reasonably strict budget and are good at withstanding the temptation to spend money then you’ve probably been called ‘cheap’ at some stage by family members or well meaning friends, even if it only is a joke. At the end of the day if you’re making sound financial decisions and someone wants to call you cheap because of it so be it, you can laugh your way to early retirement. The main question is though, are you actually being cheap or are you being frugal? We discuss this in more detail below.

What’s the Difference?

There’s a negative stigma attached with the word cheap, it’s almost like an insult if someone calls you it. Meanwhile if someone calls you frugal or you call yourself it, it doesn’t have the same negative connotations, but why is that? If you’re cheap, you’re trying to spend as little money as you can at all costs. Maybe you’ll forgo dinners with your friends to avoid spending money, don’t fix that broken boiler in your house or hold off on getting new car tyres when you need them. The reason some people get being frugal and being cheap mixed up is because being frugal also involves trying not to spend money, in a different way of course.

Being frugal is an understanding that many things that cost money do carry value and can be a worthwhile purchase. To give you an example here, imagine a cheap person bought a car at $3,000 because it was the cheapest option whilst the frugal person spent more, possibly $5,000. It’s not that the frugal person is more frivolous with money, rather they are conscious about value for money. The car at $3,000 might cost less upfront but what’s the mileage? Is the model reliable, will it break down on my way to work? All valid questions to ask and sometimes the more expensive option might be the better purchase in the long run. The same can be applied to other items such as clothes or furniture, you may have heard the phrase ‘buy cheap buy twice’ but there is some truth to it on occasion. If you’re constantly replacing cheaper items that haven’t lasted, a more expensive quality purchase can prove to be better value.

Why Being Frugal is Better

If you’re cheap and try to avoid spending at all costs you might find yourself living a ‘less healthy lifestyle’ and we’re not just talking about avoiding fruit and veg because it’s more expensive here. You’ll be avoiding social occasions with friends and family or even worse, you’ll go and want someone else to foot your bill. Those who are frugal would probably tell you that they would rather go somewhere a bit cheaper and maybe avoid the most expensive thing on the menu when they go out to eat with friends but they still want to go because the experience is worth spending the money.

You Can Still Achieve Your Long-Term Goals

If you’re cheap because you’re trying to pay off your mortgage or student loans you’ll probably get there almost as fast with being frugal, the difference is you’ll probably enjoy your life more now. It’s easy to put on some rose tinted glasses and look to the future when you’ll be financial free but you can’t forgo all your experiences now for the privilege otherwise what’s the point? This is actually one of our issues with the FIRE movement which doesn’t get discussed enough, although fortunately for you we do discuss it here.

Investing for the Future

There’s that old saying you have to spend money to make money but people who are cheap often find it hard to part with money even if it is putting their money into a low cost index fund for future benefit. OK, that is one example but someone who is frugal is more likely to invest for the future and make smarter financial decisions. Even if it is just investing in yourself, perhaps that training course or retraining for a different career will pay off in a few years down the line but requires parting with money now.

Some People Have the Right to be Cheap

We’ve basically bashed on being cheap for a couple of paragraphs but there are some people out there who have fallen on some tough times and have no other option to be cheap. Many lost their job or couldn’t work over the recent pandemic and inevitably had to cut their budget to make ends meet. There’s no harm with being over conservative with your money if you have some job uncertainty so you can tell your friends to sod off if they make a comment about it.

Bottom Line

To sum up, the main difference between being cheap and being frugal is intent. Someone who is cheap tries to cut costs at all times, while the frugal among us are looking for value for money. We’ve discussed several reasons why being frugal is better than being cheap but at the end of the day it’s up to yourself how you want to spend your money.

If you want to learn more about Financial Independence we recommend the Simple Path to Wealth by JL Collins, you can find it on Amazon here.

The views expressed in this post are the authors and should not be construed as financial advice

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David is an Engineer and Finance Writer educated to masters degree level with sound knowledge in investing, the stock market and personal finance. We hope the information provided on this site can help you achieve your financial goals.

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