If you peruse other popular early retirement blogs this may sound old hat, for the rest of us it’s time to understand the difference between frugal and cheap as you make your way towards building real wealth.’s definition of the two:

Frugal –economical in use or expenditure; prudently saving or sparing; not wasteful”.

Cheap –Stingy; overly frugal; chintzy

To I suppose being cheap is just a form of extreme frugality.

In other words:

Frugal – to be smart with money, financially and socially and to consider long term costs.

Cheap – to spend as little money up front as possible without intelligent thought of future costs or social consequence.

Examples of being cheap socially:

  • Going out to eat or drink and not tipping or tipping very little.
  • Friends buy rounds of beers but you never do.
  • Trying to get others to pay when you go out.
  • Not buying gifts for holidays and birthdays.

Examples of just being cheap

  • not maintaining anything(like a car or things around your house) because it costs money.
  • buying a cheap bathroom faucet that starts leaking within a year and needs replacing again.
  • buying the cheapest shoes only to find they’re uncomfortable and fall apart quickly.

These things will get you alienated from friends, family and peers or cost you more money and time in the long run. My thoughts on each point:

  • Tipping – regardless of your financial goals, many people live on tips. To me it doesn’t matter if you’re against the idea of the tipping system, it’s just how it is and you’re not going to change it by “not tipping”, your only hurting hard working people. If you decided to go out, suck it up or don’t go out at all. I generally tip around 20%.
  • Beer – I suppose the beer reference is more to my circle of friends, many of my friends are home brewers who all enjoy a good higher end beer.
  • Being a Leech – I’ve actually been trying to pay more for my friends, some of whom were very generous over the years and would get me drinks when I was in college and I made a lot less money then them. But as a general rule if you’re close to friends that just pay for your meal, your obviously supposed to buy their meal another time. If you don’t like it, you probably should avoid going out or just bring cash and give your friend cash if they pay for the whole thing on credit.
  • Gifts – I actually do struggle with the gift thing occasionally when someone wants something very specific. Being a non materialistic person, I have a hard time when I buy superfluous luxury gifts for people I would never actually buy for myself(even if I would like it). Or worse, buying an expensive gift knowing it’s unlikely to get much use, just thrown in some closet for years. It’s just one of those things you suck up and go through, hopefully your family and friends put limits on the gifts, most do around my area.
  • Buying the cheapest items – Simply buying the cheapest item you can find is often an example of being “penny wise and pound foolish”. I usually do research into items like power tools for example. saving $10 on a tool that is known to be unreliable vs something that’s known to be a better quality, longer lasting product. I’ll always pay the extra $10 and have a better tool I hopefully wont need to re-buy the same tool down the road. Using research, I usually end up with middle of the road product lines, not the cheapest nor the most expensive. And it goes the same with pretty much every single item I buy.

Examples of being Frugal:

  • choosing a small car over a truck, then researching and choosing a reliable used Toyota Corolla over an known less reliable cheaper car like the Chevy Aveo.
  • Buying fruits and vegetables when they’re in season.
  • Simply cooking at home and brewing your own coffee instead of going out to eat and going to coffee shops.
  • Inviting friends over to hang out at your place for beers and food instead of going out to a bar all the time.
  • going biking, hiking or camping instead of going on a shopping spree to buy expensive pointless items.
  • Only buying items you really need and doing research for cost vs reliability and quality instead of simply buying the cheapest or most expensive item.
  • Redefining what it means to “need’ something. I don’t “need” an Iphone, a new car, a big house, a new laptop, a latte or meals out every day, etc. List goes on but you don’t consume endlessly when you’re being frugal, your judging cost vs quality vs need. You don’t buy what you don’t need and you buy quality for what you do.

When you’re frugal you think about money in a financially and socially smart way. Being smart socially can mean while only buying what you really need, you buy from small local stores or farmers markets, it can mean understanding that driving 15 miles away to save $2 is an example of penny wise and pound foolish (you save $2 on an item but spent an extra $3 in gas) not to mention extra time spent. Being Cheap to me means not putting any thought into into the process and just trying to save as much as you can up front while possibly costing you more in the long run and alienating people in the process.

Being frugal to me means you put thought and research into the process while staying socially acceptable and balancing cost savings with quality.

Socially, It doesn’t matter if you don’t buy things for yourself or live in the frugal way in general. People may notice but you won’t be a social outcast because it doesn’t affect them that you drive a cheap car or live in a small house. If some people do get upset because your shirt was $20 instead of $100 and it’s the wrong brand or that your driving a 10 year old Toyota instead of a brand new BMW.. well that’s probably a group of people you don’t want to be friends with anyway unless you willing to be struggling for money constantly and enjoy living a non sustainable – superficial life. Friendship should be about who you are and not what you have.

Being careful with money wasn’t something I chose to do one day, it was something I felt I had to do. I didn’t have steady income for years. I learned to be careful with money so I didn’t run out during the lean times and I learned how credit card debt can destroy you. Luckily I only needed one lesson on the dangers of credit cards. Although I make decent money today, I never completely lost my habits from those harder years. Since learning about Investing, I plan to turn those frugal habits into a plan to be financially stable without work so I can continue learning new things, helping people along the way and experiencing real life outside of a tiny cubical.