Frugal vs Cheap: Differences Explained

Frugal and Cheap are two popular words in personal finance. Frugal vs Cheap are like two siblings. Although they are synonyms, there are still key differences between the two. This blog post will help you understand the major differences between frugal and cheap.

Before we dive into the specific details, it may be beneficial to first take a look at the dictionary definitions of these two words.

Frugal

• Merriam-Webster: characterized by or reflecting economy in the use of resources.
• Dictionary.com: frugal means economical in use or expenditure; prudently saving or sparing; not wasteful:
• Wikipedia: the quality of being sparing, thrifty, prudent or economical in the consumption of consumable resources such as food, time or money, and avoiding waste, lavishness or extravagance. In behavioural science, frugality has been defined as the tendency to acquire goods and services in a restrained manner, and resourceful use of already owned economic goods and services, to achieve a longer-term goal.

Cheap

• Merriam-Webster: unwilling to spend money or low in quality and low in price
• Dictionary.com: Costing very little; relatively low price; inexpensive
• A slang term for cheap people is “cheapskate”.

As you can see from the dictionary definitions above, frugal and cheap have similar meanings, because both of them involve spending sparingly. However, even though frugal people often avoid lavishness, they will still spend their hard-earned money when necessary. Sometimes, people with a frugal lifestyle may be willing to spend money even when they have to pay full price for something essential. Cheap people may, on the other hand, focus on spending money as little as possible in all situations, even when they can and should.

Below are some key characteristics that help you understand the differences between cheap vs frugal.

I would like to illustrate the difference through a few scenarios below. We have Mr F, a frugal person, and Mr C, a cheap person.

Frugal vs cheap: Value vs price

For someone cheap, the price is always more important than value. For extreme cheapskates, the price of products and services is the yardstick for everything. They are always looking for the lowest cost and how to save a buck. The lower the price, the better the bargain. As a result, cheap people might pay a lower price, but they may also get less value in return.

On the other hand, frugal people love a good deal as well. However, frugal people understand that other priorities, such as safety and convenience, are also important. As a result, someone who is frugal is willing to pay a bit more in price in exchange for the better value that matters to them.

Travel

Mr F and Mr C are booking their dream vacations. They both want to go to New York, which is a destination that has been on their bucket list for 15 years. Mr F and Mr C have two options when it comes to getting there. They can either purchase a plane ticket and be there in 3 hours, or hop on a greyhound to take them to the nearest bus stop, and take a 20-hour bus ride to get to New York. Both Mr F and Mr C can afford the flight, and neither particularly enjoys a bus ride.

Mr C will choose the latter because the out-of-pocket cost is significantly lower. He is willing to go through a lot of trouble to save a little money.

Mr F, on the other hand, will also consider the value that may not necessarily be expressed in terms of dollars. For example, by saving time during transit, Mr F can spend more time exploring New York. He will also be less likely to suffer back pain or a headache as a result of sitting in a cramped area for 20+ hours.

Mr F and other frugal people want to save money as well. He won’t go all out and spend all of his savings on a first-class ticket, and he may book the flight in advance so he can get a discount, or even use his credit card points. But he still recognizes the value of convenience and is willing to pay a bit of a premium for that.

Who would you rather be, Mr F or Mr C?

Choosing a place to live

Mr F and Mr C have both moved to a new city to work, and they are both in search of a place to live. They also have equal income.

They have three options within their means. One is a $600 basement apartment in a part of town that is less safe. The closest grocery store is also 30 minutes away. One is an $800 basement apartment in a good neighbourhood with grocery stores nearby. One is a $1300 one-bedroom apartment in a hipster part of town.

Mr C will choose the first option. The answer is obvious: it is the cheapest option of the three. Does Mr C worry about safety? Ya he does, but he thinks that he can handle it.

Mr F, on the other hand, will most likely choose the second option. Although it is not the cheapest, it offers a good balance between cost, safety and convenience. He won’t necessarily spend almost 50% more only to live in a hipster part of town, but he still appreciates the safety of the neighbourhood and the convenience of a nearby grocery store. He is again willing to pay a premium to obtain the quality of life that he values.

Frugal vs cheap: Long-term vs short-term

Someone cheap prioritizes short-term money savings without necessarily consider the long-term consequences.

Grocery shopping trips

Mr F and Mr C are in a grocery store trying to purchase groceries for the next week. Both want to save money on food.

Mr C goes to the cans aisle and grabs as much canned food as he can because they are the cheapest products out there. He then heads to the frozen food section and grabs a bunch of TV food because they are easy and cheap. People like Mr C always buy at the lowest price.

Mr F also grabs a few cans and a few packages of TV food because he loves the convenience of these items. However, instead of buying just these items, he also takes out his meal plan and makes a trip for the fresh food aisle and purchases a few fresh veggies, fresh fruit, and some ground meat to cook at home. The meat was on sale so he purchased a bit more and store the extras in the freezer. He skips the aisle full of beautifully packaged name-brand desserts and instead gets himself a bag of flour, some sugar, butter and eggs to make cookies at home. He stores leftover food in the fridge and brings leftovers to work.

As you can see, Mr C gears towards the absolute cheapest things, and he neglects to take care of his long-term health in the meantime. On the other hand, Mr F loves living frugally, so he likes to stick to the basics and employs grocery hacks such as using coupons, but he still makes sure that he has a more balanced diet.

Car ownership

Both Mr C and Mr F are both car owners because they need a car to drive to work.

Mr C’s car is making some weird noises. Mr C remembers that he hasn’t done a proper check-up for his car in five years, but he ignores the noises while mumbling to himself, “hmmm. Strange.” Needless to say, his car breaks down in the middle of the road, and because he is too cheap to purchase roadside help thinking it isn’t necessary, he ends up spending thousands of dollars out of pocket.

Mr F, on the other hand, does regular check-ups for his car. Although he may be spending more money every year with the check-ups, he is confident that his car won’t require a major repair in the long run. He also makes sure that he pays the membership fee for his automobile association, though he reads the pamphlets carefully and only selects the level of membership that meets his needs.

Although Mr F may spend a bit more money in the short-term, he may spend less money in the long-term.

Frugal vs cheap: Taking advantage of people vs. not

Cheap people feel like it is okay to take advantage of people for the sake of saving money. Frugal people, on the other hand, have clearer moral boundaries.

Dining out

Mr C is sitting at a good restaurant enjoying a nice meal. Mr C just received a bonus, so he decides to splurge a little bit this time! When it comes time to tip, however, Mr C only gives a 5% tip, even though the service was pleasant.

Mr F is sitting at a different table from Mr C. The service he received was adequate, though nothing spectacular happened. He left a standard 15-20% tip at the end of the meal. However, he was smart about his money. He actually found the restaurant on Groupon and received a good discount.

At an event

Mr C is at an event. Many hors d’oeuvres are being passed around. He takes a few to enjoy at the event, but he also takes out a napkin and hides some of these freebies to bring home to enjoy.

Mr F is also at the event. He enjoys the appetizers as well, but he only takes one each. He does take a close look at the appetizers to try to figure out what ingredients are in them because he wants to try to recreate some on his own.

Petty theft

Mr C is comfortable taking a little bit of this and a little bit of that. “It’s no big deal.” He says to himself, even though he is essentially forcing someone else to pick up the tab.

Mr F, on the other hand, never takes what does not belong to him.

Petty theft hurts.

Frugal vs Cheap: Money hoarding habits

Cheap people like to hoard money for the sake of hoarding money. As a result, they have difficulty parting with money, even if the money can help someone in need.

Bank accounts

Mr C gets a huge amount of pleasure looking at his bank account every month. All the extra money he doesn’t spend during the month goes directly to his bank account. He wants his bank balance to be as big as possible, though he doesn’t necessarily have a clear goal in mind as to what the money goes towards.

Mr F also loves viewing his bank statement each month. He is debt-free, and he feels like he is in control of his money. Why? Because he has a proper emergency fund set up, and he is on track to achieving his financial goals of financial independence, an early-retirement, and estate planning.

When someone needs help

Mr C’s sister has been under some financial stress since she lost her job during the COVID-19 pandemic. She comes to Mr C to borrow some money. Mr C turns her down even though he is pretty wealthy. He feels like he would not be able to get his money back.

Mr F has a brother who unfortunately is also having a difficult time because of the unexpected layoff. The brother also comes to Mr F for help. Mr F doesn’t turn him down immediately, but he does sit down with his brother to understand the sources of financial stress. Mr F provides just enough to help his brother go through the short-term crisis.

Tips on being frugal vs cheap

As you can see in the scenarios above, a frugal person comes across as someone who is in charge of his money and leads a balanced life. Mr C, on the other hand, has the same amount of money, but he lives with less comfort and dignity. I’d much rather be Mr F than Mr C.

Here are some tips on how you can be frugal instead of cheap:

Focus on value instead of price

Value can be a very individual thing. People who value visiting different parts of the world will prioritize travel, whereas others who appreciate a cozy and aesthetically pleasing home may save on travel and spend it on home decor.

The relationship between value and price is not necessarily linear. Frugal people try their best to find ways to balance between the best value and best price. Both the world traveller and the home decor enthusiast above are willing to spend up to a certain dollar amount to get what they value, but they don’t go to the extreme and spend dollars carelessly to get things that are not high on their priority list.

Save money without sacrificing your lifestyle

Save money is a good habit to have, but saving so much money that you stop enjoying life isn’t very fun if not cruel to yourself. As someone frugal, you save diligently (perhaps you are even doing a no spend challenge once in a while) and you think carefully before making any purchase (or at least major ones). You may enjoy going to thrift stores or second-hand stores to purchase someone else’s slightly used designer bags or other gently used products. However, you don’t beat yourself up for having a fun night out with friends, and you don’t feel bad about donating money to a charity that does great work.

Be generous towards others

Generosity is a key differentiator between a cheap individual and a frugal one. A frugal individual prides herself on her ability to help others. A cheapskate protects her pockets to the extreme.

Think about other people’s perception of you

If you ever wonder whether your action is more about being cheap or being frugal, try to your change perspective. What would be the first word that came to your mind if it was someone other than you who behaved this way? The person might think “cheap” and give you thumbs down, or he might think “frugal” and gives you a thumbs up. Which one rings true to you?

Final word

Frugal and cheap are synonyms, but they do have some fundamental differences. Being frugal usually has positive connotations, and is usually associated with phrases like financially savvy, simple living and minimalism. On the other hand, being cheap is usually associated with negative connotations like penny-pinching, being stingy and tightwads. The fine line between the two can sometimes be a little bit blurry, so I hope that this blog post can help you differentiate the two.

The bottom line is, let’s embrace the philosophy of frugal living. You don’t need to keep up with the Joneses, but you also don’t need to pinch a penny. By living a simple life that is not full of deprivation and spending wisely, we can be happier living on a budget.