A lot of people ask me if they have to be miserly or cheap to gain financial independence or retire early. I have also heard people who are frugal, being called “cheap” in social circles. That is why it is important to differentiate between the two.
It seems a lot of people misunderstand frugality with cheapness. Hence, I would talk about some basic differences between being frugal vs being cheap to help understand what frugality means.
So what does it mean to be frugal but not cheap?
Frugality means that you display good judgement in the way you spend your money. Essentially you buy what you need, not what you want. Being cheap, on the other hand, has no such value. You can be cheap buy collecting things that you want in a cheap manner. What is means is, being cheap is about spending less. On the other hand, being frugal means you prioritise your spending so that you can have more what you really care about.
Suppose you are in a restaurant and you ask to pack whatever is left on other tables, that is cheap. Asking to pack your own food, that is frugal. If you don’t buy a new pair of pants, even though your old pants are rugged and torn, that is being cheap. But if either you fix those pants or buy a non-branded pant that essentially is fit for the occasion, that is being frugal.
It is okay to be frugal and spend on others
A cheap person will never pick up a tab when they are out with friends. A frugal person will be gracious enough to pick up that tab provided he/she is not the only one doing it every time he/she is with his/her friends. Reason is that a frugal person is investing in building relationships and experiences. A cheap person on the other hand is just saving money.
What are the thumb rules to differentiate being frugal vs being cheap?
Coming up with a thumb rule is hard. I am trying my best to give 3 such rules that could help you figure out the difference.
- People who are cheap use price to assess vs people who are frugal maximise value. This value includes value of time, lifetime value and value of experiences.
- Frugal people also value other people and their services. Going to a restaurant and using a discount coupon or app is being frugal. But if you decide on the tip amount basis the discounted price then that is cheap.
- Cheap people don’t like to spend even on necessities. Cheap people will try to avoid going to a doctor at all costs. Frugal people on the other hand realise the importance of health and would be okay to spend for the best value treatment.
If you think I have gotten the idea wrong or there are other ways you want to add, please comment below.