“Price is what you pay; value is what you get.”
Being called a cheapskate when I was a young kid cast a dark shadow over me. We lived in a modest neighborhood in the Bronx so it wasn’t like some of us were from the upper class. Still, our lifestyle was far more humble than others and I was picked on for getting an ice cream without sprinkles or ratty clothes. My parents were more frugal for good reason. They struggled with their small business and needed to save money for our basic needs. For many people, frugality is a necessity, for others, it may be a choice.
Cheap Vs. Frugal
Nowadays, calling someone frugal is more of a virtue, like giving a badge of honor to that person. Being frugal or cheap is sometimes used interchangeably but the terms have different meanings. According to Merriam-Webster, frugal is characterized by or reflecting economy in the use of resources. On the other hand, cheap has a range of definitions. Cheap has two or more definitions: charging or obtainable at a low price and of inferior quality or worth.
While both terms are about saving money, being cheap is usually motivated by price and paying less. On the other hand, being frugal considers price along with quality and value in evaluating the purchase. There is a gray area but when considering if a person is being cheap or frugal, you’ll know the difference by their actions or words. Cheap people are penny-pinchers who will mostly pick the lowest price option even if the quality is suspect, regift presents, and are poor tippers. Many will engage in D-I-Y projects like plumbing and electrician work just for the sake of not spending the money.
When Frugality Can Go Too Far
Being overly cheap or extreme frugality without reason and lack of generosity has been cited as a symptom of obsessive-compulsive personality disorder (OCPD) by the International OCD Foundation. The American Psychiatric Association has pointed to this symptom as when “a person adopts a miserly spending style toward both self and others.” Growing up, my Uncle Harry lived with us for many years. He was a Holocaust survivor of the death camp, Auschwitz. As a teenager during the war, he suffered from the traumatic effects of the camp, losing his family, except for my mom, and did not get married until late in life. Unfortunately, he divorced soon after.
It was extreme frugality that killed his marriage. His wife, Doris would come home with a dozen eggs or too many groceries and he would have a breakdown over the potential for wasted food. His psychiatrist noted his anxiety about wanting to save money or extreme frugality was a tragic symptom of his experience.
In contrast to being cheap, frugality is a strategy toward not only saving money but considers the whole picture: quality, durability, value, and price of what you are buying. Those who are frugal are savvy about saving money for themselves and others. They will consider other variables like whether that purchase is good for the environment and other causes.
The Frugal Warren Buffett
Warren Buffett is as legendary for his frugality as he is for his investing acumen. He has lived in the same home in Omaha since 1958. He has been known to eat in McDonald’s and at his company’s cafeteria. He is a value-seeker when investing or in his lifestyle. Yet, for all of his frugalness, Warren Buffett has donated $37 billion since 2006, a very generous person indeed. He uses the same frugal nature when investing. One of my favorite Buffett quotes: “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”
6 Benefits To Being Frugal Without Being Called A Cheapskate
1. Having A Purposeful Mindset
Adopting a frugal mindset means being more thoughtful about your purchase decisions. It is not about having it all but about choosing carefully what is best for you and your family. Having a frugal attitude favors good money habits like saving money and better financial management overall. It is not about choosing the lowest price option basing your decision on price alone. More factors are considered.
Frugality is a lifestyle that people adopt for the simple pleasures of life. It is not new. Modest or minimalist living has been advocated by the likes of Plato and Henry David Thoreau in Walden. It is in contrast to societal desires for materialistic possessions which often leads to overspending just to keep up with your peers. Being thrifty has its merits and can lead to sound well-being.
Related Post: 10 Ways To Better Manage Your Spending
2. Motivate Yourself By Knowing Your Goals
It is easier to save or manage money when you have a plan for your future. Determine your short and long term goals. Those who plan to retire early, work hard, set aside money for savings, retirement, and investments. Their plan will motivate them to be financially independent and retire early (FIRE). It is not for everyone but it does give you a chance to develop good money habits for future financial flexibility. By adopting frugal ways to save more, spend less now so you can retire early in life. This allows you to choose what you want to do later on at a still young age.
I left my job on Wall Street in 2001, well before the FIRE movement became popular in the 2010s. My choice was to go to law school and practice for a few years, have kids and teach at a college. For me, it has worked out fortunately though it was a big adjustment that could have been smoother. To be honest, I didn’t have a well-developed plan though I did want to return to school because I enjoyed learning new things. Goal setting is important even if you finetune through the years.
The Frugal Millionaire
In The Millionaire Next Door, a favorite read of mine, millionaires were profiled in two groups. The Under Accumulators of Wealth (UAWs) were the more typical white-collar professional millionaire, devoting more of their high income to luxury goods to maintain their status. As a result, they had lower net wealth compared to their income by neglecting savings and investments.
The Prodigious Accumulator of Wealth (PAWs) were millionaires who were more frugal. They avoided a showy lifestyle, bought used cars, often living in blue-collar areas. Goal-oriented, they made smart buying decisions, using savings to invest more of their money in securities or in businesses for good returns. PAWs spent less on luxury, accumulating higher net wealth relative to income from less.
3. Prioritize Spending To Improve Your Financial Health
Although you don’t want to penny-pinch, prioritize your spending. Frugal spenders tend not to be compulsive shoppers, accumulating lots of material possessions to regret. That doesn’t mean you can’t travel, buy good things, or enjoy your life. Quite the contrary. It is about spending thoughtfully and moderately and not on a whim. Know the difference between your wants and needs or living essentials. Your needs–food, rent, clothes, medical, education– should be a priority. Yes, you can have that latte if it gives you a certain pleasure.
Being frugal means spending below your means so that you can save money to improve your financial health. Those who are frugal tend to:
- Save money rather than spend;
- Avoid debt rather than purchase on credit;
- Pay their credit card balances in full;
- Have an ample emergency fund invested in a money market deposit account;
- Contribute at least the minimum amount into your employer-sponsored 401K plan to earn their match; and,
- Set aside money to build up an investment account.
Related Post: 10 Commandments of Saving Money
4. Price Vs Value
Buying solely on a price basis without regard to quality is a hallmark of cheapskates. Those who are frugal make economic rather than impulsive decisions. Price is important but there are other factors to consider. When making purchases, frugal people will consider quality, usefulness, reliability, durability, style, convenience, past experience, and trustworthiness of the company or the brand. In other words, they will look at the whole picture.
Of course, the price versus value equation depends on the product itself. Frugal shoppers are going to dive into all those factors for convenience products. Those purchases are frequently products like toothpaste or laundry detergent. The price will play a bigger role. For these products and many others, you can save money by buying generic brands at a discount to name brands. The price will be lower for generic brands, as much 35% reductions compared to name brands but the quality is often the same.
Don’t Shop On Price Alone
When shopping for appliances, furniture, clothing, and other items less frequently bought, quality and other considerations matter. Buying furniture chiefly because it is inexpensive is a recipe for disaster. That is being penny-wise pound foolish. Robert Burton is credited with that British saying in 1621 and is in The Anatomy of Melancholy. I am not sure Burton had our cheap bookcases in mind. However, that is what Craig and I remember saying after we bought cheap bookcases at a “bargain price.” We regretted that purchase made in our early years together almost immediately. The bookcase crashed in the middle of the night. Apparently, cheaply made, it didn’t hold up our books for too long.
5. Frugalness Is Good For The Environment
Practicing frugality has become a cult and more acceptable in recent years. This is partially due to frugality is good for the environment which we all want to save. Even if you are not saving money, reusing bags at the grocery store, or not taxing our utilities makes economic and environmental sense. Turn over your lights when leaving your room or home. Wash your clothes on the cold setting and lower or raise your thermostat. You may have personal savings but you are also helping a cause.
6. Be Frugal About Wasting Time
Time is money. Both are valuable resources but time is more precious because it is finite. It cannot be replenished. Saving money is important but not when it causes you to waste time. Time is an element that many of us use poorly. Examples of how we splurge on time when trying to save money are:
- Driving around to get the best gas price;
- DIY projects when you aren’t handy or even like doing them; and,
- Grocery shopping at different places to get the best price at each store
Being frugal with our time means being more focused on how you are spending it. To save money I sometimes over research things for the best product. Make a “to-do” list to organize your time more meaningfully. Don’t go shopping without a list.
If you are pressed for time, consider spending money on time-saving services. Studies say it can promote happiness when time constraints are stressing you out. On the other hand, Some people work more efficiently under a tight timeframe. I find that I often accomplish more with time constraints which help me to be more focused. Balance your needs of saving money and saving time according to your abilities and preferences.
Related Post: The Relationship Between Time, Money, And Productivity
No one wants to be thought of as cheap. Being frugal, on the other hand, is often a virtue that may lead to a happier lifestyle. Just be sure you are not becoming obsessive like my Uncle Harry. Saving time and money are valuable goals that can help to eliminate stress while strengthening your financial health. Maintain a balance to live a life you enjoy. You don’t need to eliminate pleasures just for the sake of being frugal. Instead, prioritize what is most important for you.
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With a passion for investing and personal finance, I began The Cents of Money to help and teach others. My experience as an equity analyst, professor, and mom provide me with unique insights about money and wealth creation and a desire to share with you.