There's a fine line between frugal and cheap. Frugal people understand that paying more doesn't necessarily mean a better value. People labeled as cheap wouldn't pay a premium price regardless of the value. Billionaire investor Warren Buffett is often labeled as frugal. Your neighbor, whose claim to fame is the fact that of all of his or her belongings were purchased at a garage sale, is probably cheap. Here's how to avoid being labeled cheap.
SEE: Warren Buffett: How He Does It
Frugal People Know When to Pay up
Cheap people only look at price. They believe that the only way to achieve value is to pay less but they fail to take in to account other factors. Frugal people know that sometimes, it's best to pay up. A quality mattress may cost more, but the added support and ergonomics may help somebody with back pain. Paying the extra money for a pair of timeless jeans from a premium store may result in longer life and less signs of wear.
Cheap people may not be skilled at managing their money as frugal people are. Let's assume that a cheap person and a frugal person head into an appliance store to purchase a dryer. The cheap person would look for the lowest priced model where the frugal person would evaluate the energy efficiency and compare gas versus electric. He or she may research the model and read customer reviews Before a purchase is made, he or she will look for rebates and sales at other stores. The better use of his or her money may be a higher-priced model, but the cheap person may not see a need to research when the lowest price, basic model is in front of them.
SEE: 6 Spending Tips From Frugal Billionaires
Cheap People Think Everything Is Overpriced
You've been with this person. This is the person that complains to everybody about the cost of everything. If you go to a restaurant, they don't understand why a burger is $10, if you take them to a baseball game, they complain about the price of the ticket. Even the candy bar at the gas station is too much. Frugal people may be thinking the same thing but they understand that voicing it makes them sound cheap. Instead, frugal people don't purchase the candy bar.
SEE: 7 Tips To Move On The Cheap
Frugal People Put People Above Savings
Have you ever gone out with somebody who uses coupons to save on the price of a dinner? That's frugal and most people wouldn't see that as cheap, but how about the person who uses the coupon and then tips based on the amount after the coupon instead of the original price? Frugal people love to save a buck, but they won't take money away from others to do it.
SEE: Be A Holiday Saver, Not A Scrooge
Cheap People Don't Buy Necessities
Have you ever met somebody who won't go to the doctor because it costs too much? How about somebody who doesn't plan to help their child with college expenses because of the price? Those may be extreme examples, but cheap people may not even pay for the basics of life where frugal people look to get the best price they can.
SEE: 5 Moves That Make You Look Cheap
Frugal People See the Higher Purpose
Frugal people love to save a buck, but that doesn't mean that they aren't generous with their money. They believe in giving to worthy causes, but will exhaustively research charities to find ones that don't have high administrative costs. Or they might forgo organized charity and give only to family and friends with a real need. Warren Buffett believes that giving kids too much money does more harm than good and because of that, has promised most of his fortune to the Bill and Melinda Gates Foundation instead of his children.
Cheap people may have a different mindset. They see their money as theirs and they may hold it for the rest of their life. Their children may speak of them as somebody who would rarely gave a gift or helped when help was needed. This may lead to a strained relationship with that parent. Money appears to mean more than the relationship with others.
The Bottom Line
We admit, there is no scientific way to distinguish between cheap and frugal people. There are cheap people we love and frugal people we dislike, but perhaps the best distinction comes from understanding value. Just because something is less expensive in price doesn't necessarily make it cheaper once other costs are included.
InvestingAll businesses face adversity, and Procter & Gamble is no exception. We take a look at recent developments affecting this global giant.
BudgetingDon't let your baby's wardrobe derail your budget. These top tips help you to save money and spend wisely on baby clothes.
Personal FinanceFinancial trends among college students are a cause for concern, prompting a renewed emphasis on financial literacy.
Options & FuturesProfessionals choose the options available to you in your plan, making your decisions easier.
BudgetingThe excitement of welcoming your first child to your family shouldn't prevent you from making good cost-effective decisions.
BudgetingDating on a budget doesn't have to be boring. Try these 5 tips to find the best dates on a budget.
BudgetingBuying secondhand items is a great way to save money, but these seven kids items should not be bought used.
Stock AnalysisLearn about the risks of investing in Berkshire Hathaway. Understand how issues of succession, credit downgrade risk and increased regulation could hurt it.
InvestingFrom platforms for saving money to those that account for side jobs, mobile apps are changing spending habits and income generation in urban areas.
BudgetingCooking at home saves time and money but most importantly, it could even help lower future health costs.
Many traditional lenders and banks are failing to provide loans. In their absence, hedge funds have begun to fill the gap. ... Read Full Answer >>
Discretionary income is the money left over from your gross income each month after taking out taxes and paying for necessities. ... Read Full Answer >>
A wide range of possible deductibles are available with health insurance plans, starting as low as a few hundred dollars ... Read Full Answer >>
While there is no hard rule for how much of a person's income should be discretionary, Inc. magazine points out that it would ... Read Full Answer >>
Generally speaking, aim to keep between two months and six months worth of your fixed expenses in your demand deposit accounts. ... Read Full Answer >>
The rule of 72 is best used to estimate compounding periods that are factors of two (2, 4, 12, 200 and so on). This is because ... Read Full Answer >>