Being cheap is not a bad thing and being frugal is not the cure to all of your financial problems.
At the same time, society has placed a lot of stigma on both concepts. In some cases, because you are broke, you don't have a lot of choices. You find a cheap food you can afford, as you can't be picky. But if you have more than enough to sustain yourself and some, then it is just pitiful that you would restrict yourself so much by being cheap.
Let me tell you a story and that will hopefully demonstrate what I mean.
Some time ago I lived in Leeds in the North of England. At that time, I was not picky about where I lived so I snagged a deal for a decent size room in an apartment where my only housemate was the landlord.
He didn't stay in the house all the time, but when he did, it was a really interesting experience as I was able to get a feel of the way he lived and thought.
As he was working in the military in London and only home for the occasional weekend, every time he would come home from London, he would drive, which is just a few hours away on the motorway.
And here is the kicker, in London, there is the congestion charge which you would need to pay if your car is not an EV or a hydrogen fuel cell car, which, his was not.
So to avoid this small fee, he would always leave late at night (9-10pm), even if it was raining cats and dogs or it was extremely foggy. Nothing wrong with doing so, plenty of people drive through the night, but would you do it if you risked falling asleep behind the wheel?
I guess you would be happy to pay the £15 a day and leave work at 5pm to get home at 9pm. That is what a reasonable person would do, but an extreme saver would not. For them this is wasted money.
It is all about what they can get and if they can go without doing it. It is the equivalent of me staying at work 2 more hours doing nothing and saving £1 a day by not paying the peak fee for the metro/train.
That decision-making mechanism has been inbuilt into the mentality of a person through their early life. For example, I do know a lot of people who had nothing and even after making it, continued to behave as cheaply as possible as they did when they didn't have any money.
However, being frugal is not the be-all and end-all solution to your personal finance problems. It is a way of thinking, a framework for how to make decisions and a guide on how to have a healthy relationship with money.
Now that we have built a picture of the two types of people, let's set the baseline definition for them.
Being cheap vs being frugal
A cheap person is someone who is extremely price-sensitive. They would go for the cheapest possible option regardless of the quality or value. They would prioritize saving money over getting some nice clothes or going out for experiences.
Whereas a frugal person would try and maximize the value they get. They would search for reasonable prices and wait patiently for a great deal. And don't be surprised if it seems like they are good at making miracles, they are extremely resourceful and great at finding deals without sacrifices of the experience.
Unsurprisingly, being frugal is viewed quite positively by society, whereas being cheap is frowned upon. But before we look at 7 fundamental differences between being cheap and being frugal, we need to demystify those two misconceptions.
Myth#1: Being cheap is the same as being frugal
This comes from most people using both words interchangeably as if they mean the same thing. Or using it as an excuse to justify a not-so-good of a purchase as "cheap" and simultaneously making a not-so-good choice and calling it "frugal".
Myth#2: You can either be cheap or frugal, not both of them
This is also wrong. You can always take the best of both worlds and make some strides. But to better understand how to do so, let's look at the 7 fundamental differences between being cheap and being frugal.
1. Psychology
As with every other human behaviour, being cheap or frugal is based on our psychology. They both involve saving money, and they both try to get a good value, but the overall factors behind them are different.
The cheap approach is the one driven by anxiety and the scarcity of not having money. Whereas the frugal approach is the one where you get the best out of a situation while not breaking the bank.
2. Motivation
The motivation for each decision in the two types is directionally the same, but the execution is different.
A cheap person would be motivated by their savings and prioritize saving every penny at the price of value. Where the frugal person would do their best to use their limited resources and maximize their value. Still, they would be conscious of how they spend their money and the quality they get.
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3. Personal Circ*mstances
Each one of the two modalities comes from a set of personal circ*mstances that drive you towards it. But since life is fluid, so your approach towards finance will change with time.
A lot of people who resort to being cheap as their base state have suffered prolonged periods when they didn't have money and a hungry stomach is a good teacher.
With time, I have seen those people move on and become a lot more frugal - a bit less calculated and a lot more strategic, a bit less scared and a lot more hopeful and enthusiastic.
And from personal experience, I can tell you that there is a lot of joy in moving from the one to the other.
4. Society and expectations
When it comes to society, it has a lot of expectations and misconceptions for both cheap and frugal people.
Society perceives cheap people as inconsiderate and frequently as stingy. And they often see frugal people as wise and resourceful.
But quite often, the lines between the two get blurry. A cheap person might be stingy about things like clothes but could be lavish with their food purchases. Whereas a frugal person might be stubborn and resist buying new clothes as "they are not a good deal at the moment", which is something you would also expect a cheap person to do.
5. Spending habits and mindful buying
Like everything else, there are noticeable differences between the two types of people and their spending habits. One only focuses on price, whereas the other focuses on both price and value.
A cheap person would only be fixed on what the price is and put a lot lower emphasis on the value of longevity. As we say in Bulgaria "cheap is always expensive in the long run" as cheaper items would easily break, they would require a lot more maintenance or frequent replacement. This in the long run makes them a lot more expensive.
At the same time, a frugal person would not blindly disregard the value of their purchases. They are frequently willing to pay a bit more but get higher quality that will be useful in the long run.
Sometimes this will come to their detriment as they would use the value angle to justify a purchase they don't need. And if that does become a habit, it could be extremely destructive for their goals.
6. Long-term goals
Frugal people are more likely to make a simple budget that has plenty of flexibility. They make conscious decisions based on their long-term goals and allow for plenty of flexibility.
Cheap people try to be laser-focused on the short term as it is a lot easier to control and there is nothing wrong with that, as long as you don't overdo it.
As you might expect, there is a huge difference between the two when it comes to adaptability and flexibility in their plans.
Frugal people have a lot more wiggle room in their plans and their budget. They usually look into the future and try to prepare for any surprises. They might be willing to spend money to save time or avoid inconvenience, but wouldn't waste their time on extreme couponing or unnecessary haggling.
Whereas a cheap person might not be so flexible, they might not have that into their budget, might not have the luxury of moving things around. But they also might not value their time a lot or they might value a bargain a lot more than anything else.
One problem is that it might lead to a lot of wasted time that could have been used for more productive endeavors or picking up more work and paying for the difference in price.
While both have amazing benefits, both cheap and frugal approaches can help you save money and achieve financial goals. Being frugal can also help you become more resourceful, develop valuable skills like budgeting and negotiation and become more conscious of your consumption habits.
Remember, there is a fine line between being cheap and being frugal. It is ultimately up to you to find what works for you and your financial goals.
I don't want to sound condescending, I have been there too and have had nothing. I know how it is to be so broke you have just enough to get by. In those situations, you don't have much choice and must be cheap - I get it.
At the same time, so many people are cheap because of choice, not because of necessity. Many do it just because it is a habit, not because they need it. And those people are losing so much of life.
At the end of the day, it is all about how you want to use your resources and what makes you happy. It is not anyone’s job to judge anybody about how they spend their money or what they buy. But it is my moral duty to call out self-destructive behaviour, the same way someone did for me and pushed me towards becoming better and moving towards being more frugal than cheap.
Next week it is time to talk about couples and finance. How do you talk about finance together? When do you start talking about finances? What should you do as a couple with your finances? All that and more.
Thank you for reading! All comments and topic suggestions are highly appreciated. Post #76 in the series CFO of Life #si #personalfinance #CFOofLife
