I remember back when my wife and I were dating. At the time, I was trying to get myself out of debt and nothing could stop me from reaching my goals. Financial freedom was what I wanted and it was the only thing that I could see. Unfortunately, it was straining my relationship and I didn’t even realize it. My wife, at the time girlfriend, said to me, “there will be no future for us to enjoy together if we don’t make it past the present.” That was a wake-up call for me.

Unknowingly, I had crossed the line from being frugal to being cheap. I was sacrificing time spent being with her to save some money. Not only her, but with our friends. In order to save money, I had started to suck the purpose and the fun out of life. Thankfully she snapped me out of it, I was able to strike a better balance, and our relationship grew ten times healthier. So much so that we ended up getting married just two years later. I’m happy to report that we are coming up on our one year anniversary!

Cheap vs Frugal

In your search to get rich young, frugality is a key component of the shortest path to financial independence. As you take the time to lower your cost of living it is important not to cross the line and become a cheapskate. There is a fine line between being cheap and being frugal. It is important to remind ourselves of the differences from time to time in order to prevent us from drifting over the line.

As you read through the examples of differences between cheap people and frugal people, I want you to ask yourself two questions.

1. Am I being cheap or frugal?
2. Who would I rather hang out with?

Remember, financial freedom means nothing if you have nobody to share your free time with and nobody to make memories with.

Cheap people value money over people. Frugal people value people over money.

Cheap people will avoid ever going out because they do not want to spend money. They do not take the time to foster relationships because those relationships mean money out of their pockets. If a cheap person is in a position to choose between spending some money with some friends or spending no money alone, they choose the latter. Money truly is the priority, and people tend to come second.

Frugal people also do not want to spend all of their hard money, but want to be a part of the group. They need to get creative to meet both demands. Instead of avoiding the situation, they try to cut costs without cutting fun by suggesting hikes, bikerides, and enjoying the great outdoors. Great conversation is all that it really takes to have a good time, and frugal people understand that people will remember this more than an expensive night out anyways.

Cheap people resist needs. Frugal people resist wants.

The cheap person will ignore necessities to save a few bucks. A bad injury or an open wound may be left untreated and unchecked just to save some money. A cheapskate will not spend the money to go see a doctor no matter how bad the symptoms are.

The frugal person on the other hand, first does some research on the symptoms and looks to see if there are any home or over the counter remedies. If there are not, or if s/he has exhausted those options, then s/he will absolutely go to the doctor. Health is not an option, it is a necessity.

Cheap people eat big and tip little. Frugal people eat little and tip big.

Have you ever gone out to eat with somebody, they ate their fill, but then skimped on the tip? That person is cheap. Cheap people realize that they only have $30 to spend on the meal, so they buy the $28 item knowing they have a 7% sales tax which will get them to $29.96. They then leave the remaining $0.04 tip for the hardworking waiter or waitress. The cheap person may then line his/her pocket with any remaining sugar packets on the table.

The frugal person also realizes that the only have $30 to spend. However, the frugal person opts to order the $23 meal and skip on drinks to make sure they have enough for tax and a 20% tip. They understand that the waiter/waitress is trying to make an honest living and giving 110% to make this a pleasant experience. Valuing people over money, the frugal person makes sure to recognize the effort.

Cheap people re-gift or don’t gift. Frugal people make gifts.

It is a friend’s birthday party and the cheapskate came with a gift that he was given on his own birthday three months ago. Possibly even worse, he came with no gift and an expectation of free food. The birthday is not about what the cheap person can do for his friend, but what his friend’s birthday can do for the cheapskate.

The frugal person was invited to the same friend’s birthday party. Knowing that this particular friend is a veteran who just busted a pair of headphones, the frugal person sets out to make a special set of earbuds. The gift is a huge success because it is so thoughtful and the frugal person took time to make it himself/herself!

Cheap people try to maximize money. Frugal people try to maximize time.

Cheap people hear about an awesome deal to score a $50 off a new computer. They have to be one of the first ten people in line, so they make sure to get in line the night before the store opens. It may take a total of 10 hours in the freezing cold and missing a night with friend’s, but that deal was too good to pass up for the cheap person.

The frugal person realizes that 10 hours in the freezing cold to save $50 just isn’t a good use of time. That comes out to a paid rate of $5/hr which is far less than the frugal person values his/her time, so she passes on the deal. Instead s/he decides to spend time making dinner with friends which is full of priceless conversation and laughter.

Cheap people base decisions on price. Frugal people base decisions on value.

Thinking only of price, cheap people tend to buy cheap things. Deciding between a refrigerator that costs $200 from a garage sale and a $800 one from the store is easy for the cheap person. The $200 one is a steal! Cheap people only think about the short-term.

The frugal person on the other hand runs some math and discovers that the $200 one may be cheaper now, but it’s going to cost $100 more per year. Assuming they both will last about 10 years, even at a 7% compounding rate for the $100 annual savings, the more $800 option makes more sense. Frugal people think about the lifetime value of the product.

Cheapness is a vice. Frugality is a virtue.

Cicero famously said, “Frugality includes all the other virtues.” Our frugal person has shown throughout this article to be wise, honorable, generous, diligent, patient, kind, and modest. On the other hand, the cheapskate has shown none of these characteristics. In fact the cheap person has shown to be extremely greedy.

“Frugality includes all the other virtues.” -Cicero

The Frugal Priority List

In order to live a more frugal lifestyle, but never to cross over into becoming cheap, it is important to prioritize things in this manner. By aligning your priorities in this manner, you will automatically become both more frugal and less cheap.

1. People – People are always the most important. The frugal person knows this and chooses to spend time and money on others. This brings a more meaningful existence and gives financial freedom a purpose.
2. Experiences – Experiences are the second item on the list. Life is nothing without experience and the frugal person knows this. Eager to live a life worth remembering and seeking to maximize life, the frugal person seeks to create memories.
3. Things – Things occasionally provide value, but usually that value is fleeting. The frugal person understands that things can always be replaced and won’t make a difference in true happiness.

Life should be more about the people you love and the time that you can spend with them rather than the crap that you can acquire. When you are gone, people are going to remember you and your memories together. I guarantee that they will remember that far longer than how big your house was, how fancy of a car your drove, or what kind of clothes you wore.

Are You Being Frugal Or Cheap?

I told you the story about how I fell into the trap of becoming cheap not too long ago and I hope that I have saved somebody out there from making the same mistakes that I made.

What about you? After reading this, have you been being cheap or frugal? Was there a time when you couldn’t tell the difference? Share your story in the comments below.