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.

Related Articles
  1. Economics

    How Warren Buffet Made Berkshire Hathaway A Winner

    Berkshire Fine Spinning Associated and Hathaway Manufacturing Company merged in 1955 to form Berkshire Hathaway.
  2. Investing News

    What Does the Fire Monkey Mean for Your Portfolio?

    The Chinese new year this year corresponds to the monkey, a quick-witted, playful, tricky figure that means well but has a penchant for causing trouble.
  3. Investing

    7 Creative Ways to Save for an Early Retirement

    Take note of these out of the box steps you can take towards securing yourself an earlier, more comfortable retirement.
  4. Retirement

    Warren Buffett's Investment Lessons for Retirees

    For those in retirement, Warren Buffett's clear, timeless advice on investing is worth a look.
  5. Investing News

    Is Buffett's Bet on Oil Right for You? (XOM, PSX)

    Oil stocks are getting trounced, but Warren Buffett still likes one of them. Should you follow the leader?
  6. Retirement

    Birch Box Review: Is It Worth It?

    Learn more about the convenience of the subscription beauty box industry, and discover why the Birchbox company in particular has become so popular.
  7. Professionals

    The Seeds of Warren Buffett's Success

    Warren Buffett’s best teacher was first-hand experience.
  8. Personal Wealth & Private Banking

    Women, Invest In Your Financial Literacy

    Becoming financially literate should be on the to-do list of anyone who is not.
  9. Savings

    How to Save Your First $100,000

    Saving your first $100,000 requires the discipline to put money away and control your spending. But just remember – the savings get bigger as you go.
  10. Investing Basics

    Warren Buffett's 2015 Portfolio Report Card (BRK.B, WMT)

    Learn how Warren Buffett's portfolio performed in 2015. Read about an unusual position Berkshire Hathaway took in Phillips 66 during the year.
RELATED FAQS
  1. Who do hedge funds lend money to?

    Many traditional lenders and banks are failing to provide loans. In their absence, hedge funds have begun to fill the gap. ... Read Full Answer >>
  2. How does a bank determine what my discretionary income is when making a loan decision?

    Discretionary income is the money left over from your gross income each month after taking out taxes and paying for necessities. ... Read Full Answer >>
  3. What is the range of deductibles offered with various health insurance plans?

    A wide range of possible deductibles are available with health insurance plans, starting as low as a few hundred dollars ... Read Full Answer >>
  4. How do I know how much of my income should be discretionary?

    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 >>
  5. What proportion of my income should I put into my demand deposit account?

    Generally speaking, aim to keep between two months and six months worth of your fixed expenses in your demand deposit accounts. ... Read Full Answer >>
  6. How do I use the rule of 72 to estimate compounding periods?

    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 >>
Trading Center