Frugal vs. Cheap: How to Tell the Difference

February 25, 2011

In my prior blog, Car Buying: A Way to Save a Fortune, I talked about how I like to be a bit frugal when it comes to buying my cars.  Many of my friends have read that blog and, of course since they’re my friends, they aren’t afraid to chime in and tell me what points I failed to make.  With friends like that…well, you know the rest of that line.

Here’s the overwhelming commentary I got from people I know.  There is a difference between being frugal and being cheap.  Frugal is defined as “economical in use or expenditure; prudently saving or sparing; not wasteful.”  Cheap is defined as “of little account; of small value; mean; shoddy.”  Both of these definitions come from Dictionary.com (a favorite website with my kids because it has an audio pronunciation feature that helps when a word is in dispute), and they help illustrate the point I was trying to make.  Being frugal can be good for your financial health, being cheap can be more problems than it’s worth.

Here’s what I mean.   The used car that I bought most recently was a 5 year old Mercedes E Class sedan.  I knew what kind of car I wanted and it took me a long time to find one at a good price.  The same car on a dealer’s lot cost about $8,000 more than what I eventually paid.  I looked at 6 or 7 of the same model, and the sellers were fairly firm on their price and the price was high in my estimation.  I found a seller who was motivated to sell quickly and she accepted my first offer, which I expected to be rejected.  Having a plan, knowing how much you’re willing to spend, doing your homework, maintaining your patience and sticking to your plan – these are things that I’ve seen in the financially savvy/frugal people I have met.  But, when does it cross the line and become counterproductive?

Here are some things I have seen people do in order to “save a buck” (perhaps crossing the line between frugal and cheap) and the results have not always been what they wanted.  With cars, ignoring routine maintenance items like oil changes, tires, brakes, etc. can save a few dollars today but end up costing you thousands later.  Changing the oil is far less expensive than replacing the engine.  The same concept applies to employee benefits packages.  Sure, you can save a few dollars by opting out of long-term disability insurance.  But if you ask anyone who has been injured or ill and needed to use the benefits, they will tell you that it was the best money they ever spent!  Those without it may be putting their financial health in serious jeopardy by skimping on benefits now.

And that’s the dividing line.  The “frugal” make smart budget decisions today while maintaining a focus on the long-term, while the “cheap” are willing to put their future at risk in order to focus solely on minimizing today’s out of pocket costs.  At least that’s my opinion; I’m open to hearing others.