There's a fine line between frugal and cheap. Frugal people understand that paying more doesn't necessarily mean 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 garage sales, is probably cheap. Here's how to save money, but avoid being labeled cheap.

Frugal People Know When to Pay Up

Cheap people only look at the price. They believe that the only way to achieve value is to pay less, but they fail to take into 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 fewer signs of wear.

Cheap people may not be as 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; 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 buying, frugal shoppers will look for rebates and sales at other stores. The better use of the money may be a higher-priced model, but cheap people may not see a need to research when the lowest price, the basic model is in front of them.

Cheap People Think Everything Is Overpriced

You've been with this person. This is the individual who complains to everybody about the cost of everything. If you go to a restaurant, such people 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.

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.

Cheap People Don't Buy Necessities

Have you ever met someone who won't go to the doctor because it costs too much? How about parents who don'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.

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. They will, however, 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. Because of that, he has promised most of his fortune to the Bill and Melinda Gates Foundation instead of to 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 give 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 doesn't necessarily make it cheaper once other costs are included.