This blog contains some simple tips and advice from two regular guys. We're not accountants, financial advisors, or brokers, so follow, ignore, or discuss our ideas as you see fit.

Thursday, August 28, 2008

Frugal vs. Cheap

Posted by Matt

My friend sent me a link to an article about the difference between frugal and cheap. It's a great topic, but I totally disagree with the author's stance. For them, the only distinction is the intended recipient of the object being considered for purchase.
The secret is simple. If you try and save money and cut corners when spending on yourself, you are being frugal. If you try and save money and cut corners when spending on others, you are being cheap.
I think the author arrived at this conclusion based on the positive and negative connotations applied respectively to the words frugal and cheap. In this definition, cheap is just a type of selfishness peculiar to spending. I think there is more to it than that and that people can be cheap even when shopping for themselves. For example, assuming you have some discretionary income to spend on replacement shoes for yourself, is it frugal to save money by buying cheap shoes that hurt your feet and/or wear out quickly? Not if you don't wear them often enough to get any value from them and end up replacing them quickly with another pair.

The friend who sent the article to me argued that people can be both frugal AND cheap in different situations. I think that what this really means is that it is not the people who are frugal or cheap at all, but the decisions that they make and the actions they take. I evaluate each situation separately with a simple test:

Trying to avoid wasting money is frugal.
Trying to avoid spending money is cheap.

Another example: say my friend wants a new computer monitor for her birthday. If I go to the store and just look for a monitor at the low end of the price range, I'm being cheap. If, on the other hand, I elect not to buy her one of the higher-priced monitors because I know she doesn't need extra USB ports or the fast pixel response time required by gamers, I can call myself frugal.

Note that this rule becomes less appropriate as less money is available. Truly poor people don't have much opportunity to waste money and must be frugal to survive. Also, my definition for frugality is admittedly up for interpretation based on what a person would define as wasteful. This is why there is so much variety in the marketplace; different people place different values on the various attributes (features, reliability, appearance, practicality, price, etc.) of each product.

Regardless of what you define as valuable, we do need to purchase things (even if only food and shelter) occasionally, and it just makes sense to put in a little more thought than is required by simply making price the top priority.

Consider a humorous example from my experience.

My friend's father went shopping for new tires for his son. He's notoriously thrifty, but I think he was also worried about how guilty he would feel if a cheap tire blew out on the freeway and his son crashed his car. His solution? He walked in to the local tire store and said "Give me the second least expensive set of tires you've got!" Kudos to him for at least going one level up; but given that price was still the primary consideration, I'd call this decision more cheap than frugal.

In his place, I might have asked the tire salesman to recommend a reliable, long-lasting tire that offered good value for the price. Maybe the shop could have saved me even more money by offering a set of retreads. Maybe my favorite local tire chain would have been willing to match a competitor's lower price. Who knows? After all was said and done, I might have ended up with the same set of tires that my friend did. But I would sleep better knowing that I purchased a quality set of tires without wasting money.

Maybe that means that frugal people are just cheapskates who make a little extra effort. :)

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