By Dr. Jim Dahle, WCI Founder
Many people attempt to be frugal, but in reality, they simply become cheap. In this post, you'll learn the difference between the two and how to avoid this common mistake.
What Is Frugal?
“Frugal” is a compliment. Frugality is a virtue. Thrifty is generally considered to be a synonym. Benjamin Franklin said:
“Make no expense but to do good to others or yourself; that is, waste nothing.”
“Be industrious and frugal, and you will be rich.”
Frugality is a good thing. It will help you to be financially secure, purchase your dream life, and be ridiculously charitable.
What Is Cheap?
Cheap is an insult. It means stingy. Cheapness is a vice, and it often comes from avarice or greed. Look at the ways the word gets used.
“Talk is cheap.”
“The cheap seats.”
You probably describe someone as cheap when you think they're ridiculous, and you refer to them as frugal when you admire them. The opposite of a cheapskate is a spendthrift, but neither is a compliment.
Frugal or Cheap? The Eye of the Beholder
Everyone has their own views on what is a reasonable expenditure. It's a continuum, and if someone doesn't think exactly like you on the subject, you may view them as either a spendthrift or a cheapskate. That would be a mistake, though. No good comes out of judging others. Personal finance is a single-player game anyway; it's just you against your goals. You don't have to out-earn, out-save, or out-invest anyone else to win and to be happy.
But you do need a few good relationships to be happy, and that's where your “extreme frugality” (aka cheapness) can become a problem.
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Tips to Avoid and Overcome Being Cheap
There is plenty of gray area on the cheapness/spendthrift continuum. But if you're at the extreme ends on that continuum, the vast majority of people would agree that you're being cheap or wasting money. There are plenty of posts on this blog to help you with the wasting money part. Here are some tips to help you avoid being cheap.
#1 Spend Intentionally
Here's the first tip. Spend intentionally. Spend your money on what you value most. Maybe you're into really nice shoes or nice vacations or nice handbags or nice cars or whatever. Great. Spend your money there. Save on everything else. Be generally frugal and selectively extravagant.
In my case, it's outdoor equipment. When I'm going on a fun adventure, I'll spare no expense at REI or some specialty rafting or climbing shop. Yet there's a 2005 Toyota in my driveway, and my favorite outfit is a Carhartt hoodie and some comfy climbing pants.
Others might still think you're cheap, but at least you'll be true to your own self and your values. This is the whole point of frugality anyway—to be able to afford what you really want.
#2 Don't Be Penny Wise and Pound Foolish
Buy nice or buy twice applies to many things in life. Not that buying twice is always the wrong answer. If you're a golfer who shoots in the 100ish range, you're probably better off with a dozen $1 golf balls than one that costs $12.
Canyoneering is a sport where every single piece of gear is disposable. You can wear out an aluminum carabiner descending a single canyon on a sandy rope. You might only get two seasons out of a backpack or a pair of boots. Sometimes you wear cheap, protective clothing (shirt, shorts, knee pads) to avoid wearing out more expensive gear (harnesses, wetsuits). We smear roofing sealant onto some of our gear to make it last even longer. If you can buy a rope that lasts 50% longer but costs twice as much, that's not necessarily worth it.
But most things in life aren't like canyoneering. It's often a big mistake to buy something inexpensive trying to save money only to turn around and have to buy the nice piece of equipment, furniture, clothing, or appliances later anyway.
It can be the same problem with preventive healthcare and fitness expenses. Sure, you'll save $10 a month not having that gym membership. But is it worth the deconditioning and heart disease? Probably not.
#3 Don't Do Illegal or Unethical Things
There are lots of ways to save money that are unethical or flat-out illegal.
- Cheating on your taxes
- Stiffing someone to whom you owe money
- Jumping the turnstile on the subway
- “Sharing” a Netflix or HBO account
- Hacking your neighbor's WiFi
- Sneaking food into an establishment with a posted “no outside food” policy
- Theft of services
- Sneaking into events
- Wearing an expensive new dress to a special occasion and then returning it
I'm sure you can add a dozen more to the list. Doing them is even worse than being cheap. Don't want to pay $10 for drinks? Have a couple before you go (and make sure someone else is driving). Don't sneak in your flask.
#4 Tip Appropriately
If you can't afford the tip, you can't afford to eat out. It's part of the price of the activity. I wish everyone could have a job where they work for tips for a while. You'd learn an awful lot about people, customer service, and cheapness.
#5 Know What Other People You Care About Care About
When spending as a couple or as a family, you need to keep in mind how others feel about spending. Perhaps you're willing to stay in a one-star dive motel where half the rooms rent by the hour and where three people were murdered last year, but your spouse isn't. Their minimum is three stars. If you choose a hotel with less than three stars, they'll see you as being cheap. You might not need new clothes every year, but your 15-year-old kid might have a slightly higher standard. When planning a wedding, you need to consider the means and desires of multiple parties on both sides. While that should not necessarily push you into an expense you consider ridiculous or that will impoverish you, saving a few hundred or a thousand dollars over something today may cost you tens of thousands later (or relationships that cannot be fixed even by spending tens of thousands later.) You need to have the emotional intelligence to at least consider how others feel about your spending choices that affect them too.
#6 Know the Value of Your Time
I fall back on my native cheapness all the time. Heck, I've been known to skip a meal to save $20. Probably $5. You know what helps me? Knowing what my time is worth. You can actually calculate it. Your Money or Your Life has some really nice chapters about this. What can you earn after tax, and what is the cost of earning it? Maybe it's $100 an hour. Maybe more. Let's say your figure is $200 an hour. When you try to save $50 by doing something that costs you 30 minutes of your time, you're not coming out ahead. Spend the money to save the time and aggravation.
I recently spent an hour at a rental car counter. I vowed I would never do that again. Near the end of the hour, I was Googling “How do rich people rent cars?” and Katie was signing us up for Hertz Gold. As I signed out the car, the attendant told me it would cost us $30 extra for me to drive (since the reservation was accidentally put in Katie's name) and that the insurance (we were overseas) was going to be a couple hundred bucks. By that point, I had “spent” far more than that standing in the line, and I knew it. I just said, “OK, thank you very much,” took the keys, and drove away. Fighting over that $30 would have been cheap, not frugal.
#7 Remember the Big Rocks
Here's another example from a vacation. We had made plans to go to Versailles and bicycle through the gardens. Katie loves doing stuff like this (and later said it was her favorite part of the trip.) But we went to the wrong gate, and due to a special event, I was faced with the choice of either paying €68 in entry fees or walking an extra two miles to get to where we could rent the bicycles. This was an experience for which we had purchased six transatlantic flights, multiple metro and train tickets, and an Airbnb to have. It was a no-brainer, and it was €68 well spent. If I had wanted to save money, the way to do it would have been to skip the vacation altogether and not have the family spend an extra hour walking and cut into our cycling time to save €68. Not paying the entry fee would have been cheap, not frugal.
#8 Have a Financial Plan (Know Where You Stand)
There is a time in life for thrift and frugality. A lot of people don't recognize that time, and they don't recognize when it has passed. When I was in college, I donated plasma for grocery money, I bicycled everywhere, and I dined out (carefully) only on a date. But I was also broke. Now, I am financially independent. Things that made sense then no longer do now. I know where I stand. Why? Because I have a financial plan. You should get one, too. Financial plans have specific goals, and financial planners (whether DIYers or those using pros) track where they are en route toward those goals. There comes a time in the lives of most WCIers to loosen the purse strings. Recognize it when it comes along.
#9 Don't Nag Others to Pay You Back
I go on a lot of trips that I organize. Generally, the way these are done is that all of the group expenses get pooled together, thrown into the pot, and divided up evenly. Those who paid more than their share get a Venmo from me, and everybody else gets a “bill”—perhaps for a couple of hundred dollars at most. A week or so after the trip, we all settle up on the costs. Most people going on these trips are doing just fine financially, and they can certainly afford the cost of them.
I once took a younger, less well-to-do person on a trip, and when I sent out the bill, he sent me half the money (explaining it was everything in his checking account) and promised the rest with his next paycheck. I was surprised that someone who was flat broke would go on the trip at all (but to be fair, it was a really cool trip!). Did I say anything? No way. And in another month, I probably would have forgotten about it altogether (he did send me the rest a couple of weeks later). I didn't need that money, and it would have been “cheap” to try to get it or to give him a hard time about it. Don't loan more money to people than you can afford to give them. Better yet, just give it.
#10 The Wealthiest Needs to Be the Most Emotionally Intelligent
I can't take credit for this one. I learned it from someone else, and I am still figuring out the best ways to apply it in my life. When doing fun things with less well-to-do friends or family, you need to have the most emotional intelligence. Nobody wants a handout, but they can't afford to do what you want to do in the style in which you want to do it with them. You can afford to cover their share, but you need it not to look like a handout. Here are some examples of what you could say.
- “No worries, this is free to me because I'm using miles, not real money.”
- “I'll get dinner tonight, and you can cover breakfast tomorrow” (knowing breakfast will be 20% of what you spent on dinner).
- “I'll get the bill; you get the tip.”
- “I'll get the rental; you get the gas.”
- “We'll buy tonight, you'll have us over later for your famous lasagna, and we'll call it even.”
- “I'll pay for the drinks, and you arrange and pay for the Uber home.”
- “Want to join us at our timeshare (or houseboat rental)? We'll just split the maintenance cost (or gas) for the week.”
There are a million variations. They know and you know that you have more money than they do. Nobody needs or wants to point it out, but everyone wants to enjoy each other's company. So, let's play a little game that allows for that.
#11 Remember What You Are Trying to Teach Children
Money behavior is both modeled and taught explicitly to your children. Keep in mind what you are trying to teach as you go. Teach your kids to turn off lights and not to waste water to save the planet and to learn general frugality, not because it will actually make a difference in your monthly budget. They'll eventually see through that. If people wear a sweatshirt in the house in the winter, that's probably fine. You're just being frugal. If they're wearing coats, you're being cheap.
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Being frugal is fine. In fact, it's necessary if you ever want to build wealth. You ought to at least remain relatively frugal throughout your life. But you never need to be cheap.
What do you think? What “cheap” behavior bugs you? How have you overcome being cheap? Comment below!