Endless Gibberish

Money Lessons: Frugal vs Cheap

April 12, 2007 – 8:30 am

If you're new here, I suggest you subscribe to my RSS feed. or bookmark this blog. You'll be able to easily keep up to date with new posts. Thanks for visiting!

This week’s edition of “money lessons” is about the difference between being cheap and being frugal.

Being “frugal” and being “cheap” to me are two different things. Here’s how I define each of them:

In being frugal you make responsible choices with your money with the goal of getting the most for your money. However, you don’t mind spending money on those you care about and for enjoyment of life. You’re able to separate your needs from your unnecessary wants.

In being cheap you’re a miser when it comes to everything. When you give people rides in your car you demand they pay you for gas. People would describe you as stingy. Your saving money sometimes comes at the expense of others.

The difference between being frugal and cheap can be seen in this example: Say you only have $10 on you and you go out to eat with a group of people. The entre costs $8 and soda costs $2. A frugal person would order the entre and have a glass of water so they can chip in $10 to cover tax and tip. A cheap person would order the entre and glass of water and pay only $8 and let others pick up the tax and tip.

My parents are the best frugal people I can think of. They drive a 10 year old car, pack their own lunches, etc. However, whenever we go out to eat for any occasion, they always offer to foot the bill and don’t mind doing so at all. They always want to go on family vacations and don’t mind spending money on those things. They donate a healthy portion of their income to charity. The one thing they hardly ever do is buy new clothes for themselves. They feel it’s an unnecessary expense when the clothes they have are perfectly fine.

Being frugal is saving money and building wealth without being a miser. I wasn’t always a frugal person. I use to blow my money recklessly on things I didn’t need at all. I look back on those high school days and regret doing a lot of those things. The worst part of it all? Blowing money on expensive gadgets, clothes, etc. didn’t really contribute to my enjoyment of life all that much. I would’ve been perfectly happy without all those things. I would’ve had a higher net worth too. I earned thousands of dollars in part time jobs during high school and I had nothing to show for it.

So why did I choose to change my reckless spending ways? Because I wanted to get a head start on my life. By giving up unnecessary expenses (clothing purchases, latest gadgets, etc.) and keeping other expenses (hanging out with friends, netflix, etc.) I could still enjoy my youth but build some net worth at the same time. I also figured that at this point in my life, where I have no real expenses (no mortgage, no kids, etc.), would be the easiest time to start. If I started on the path of getting money to work for me, I wouldn’t have to work for money my entire life.

—

“Money Lessons” is a series of posts published every wednesday on various subjects that detail what I’ve learned or how I view that certain subject. View all “Money Lessons” posts.