When I was a kid, I thought my parents were cheapskates. Unlike my friends’ families, we rarely ate out (McDonald’s was a huge treat), seldom stayed at motels on vacation (we visited family or camped) or got a new car every couple of years. When a fad toy would come along – something like today’s fidget spinners – my parents would buy one for us three kids to share.
True story: My father would close the lid and vents on the grill after barbequing so the charcoal would stop burning and he could use the remnants for the next cook-out.
Sometime in early adulthood, I realized my parents weren’t cheap. They were frugal. They were careful with their money and spent it only on what that mattered to them – not things that marketers and the Jones pressured them to acquire. And what mattered to them? Sending their three children to college. Showing those kids a big chunk of America via epic educational, fun car trips. Retiring with total financial security.
About the same time that I came to this realization about my parents, I saw cheap up close. It was personified by a landlord who thought it was just fine to repeatedly rent an apartment with horribly stained carpets, missing drawer pulls, and a balky AC system. When I expressed my dismay with the apartment’s condition to a repairman and told him I likely would not renew my lease, he said, “I’ve known [the landlord] since high school. He’s not gonna fix anything unless the law requires it. He doesn’t care, and never has.”
So, how would I define the difference between frugal and cheap? Don’t get me started…
First, and most important, frugal people save money. Cheap people too often save money at the expense of others. My parent’s frugality in no way diminished my childhood. Indeed, their thrifty everyday habits made it possible for them to enrich the lives of every family member through travel and education. Conversely, my landlord’s cheapness made my life uncomfortable.
Frugal people, like my parents, are all about penny-pinching. But they will happily spend money on things that matter to them. So, for example, if a person loves to travel and cares little about the comforts of home, I would consider them frugal if they regularly roamed the world (prudently within their budget) but didn’t own a car, lived in an efficiency apartment, and ate ramen every day.
Cheap people just won’t spend money, even when it could buy things that might enrich their lives or those of others. They can’t imagine visiting Europe or China because “Travel is SO expensive!”
Frugal people value getting the most from their expenditures. Sometimes, this desire manifests as a willingness to pay for quality; to pony up for a well-made item that will last much longer and work better than a cheaper alternative. Other times, getting maximum value means not buying the newest model or the luxury brand. The best example is automobiles. A truly frugal person is unlikely to buy any new car, let alone a new luxury car. The depreciation alone is a buzz kill. The frugal are content with a reliable 3-4 year-old-vehicle, preferably purchased with cash.
Cheap folk, on the other hand, are so afraid to spend money that they will sacrifice quality and time to save a few bucks in the short-term.
Bottom line: Being cheap is about spending less money while frugality means prioritizing the use of our money to get the things we want out of life, including sharing life’s joys with others.
Scrooge was cheap.
Warren Buffett is frugal.
So are my parents.
Disclosure: This information is provided to you as a resource for informational purposes only. It is being presented without consideration of the investment objectives, risk tolerance or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal. This information is not intended to, and should not, form a primary basis for any investment decision that you may make. The information contained in this piece is not considered investment advice or recommendation or an endorsement of any particular security. Further, the mention of any specific security is solely provided as an example for informational purposes only and should not be construed as a recommendation to buy or sell. Always consult your own legal, tax or investment advisor before making any investment/tax/estate/financial planning considerations or decisions.
For that, I’m thankful.