Money Management

Frugal vs. Cheap: Here’s The Difference (and Why it Matters)

Piggybank on a Diet
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People tend to think of frugality as perfecting the art of couponing, as becoming a thrift store master shopper, as cutting back or even cutting out extraneous, frivolous, unnecessary expenses and purchases.

In general, that’s the thrust of the advice you’ll find when you research this topic. I’ve read many articles written by good experts that encourage people to cancel all their subscription services, like Netflix and Spotify; to only order appetizers when they eat out, instead of full meals; to never buy coffee at Starbucks, to never buy a book they could borrow from the local library, to never pay full price for anything.

Those are all fine things to think about when considering what frugality means for you. For some people, part of frugality might be ditching that daily $5 latte.

But for many people, the concept of frugality is all about sacrifice. And in my opinion, it doesn’t have to be. I think that’s the wrong way to look it. I think you should view frugality as something that empowers you rather than something that constrains you.

In other words, there’s a big difference being frugal and cheap.

Why You Should Live Frugally

In an article titled “How to Get Rich Quick, the Not-So-Secret-Formula,” I wrote that most people’s primary motivation in striving to build wealth is the desire for more freedom. Whether that’s freedom to pursue work they’re passionate about, freedom to make their own schedule, freedom to live where they want, or freedom to purchase things and experiences that bring them joy. Wealth itself doesn’t drive happiness, but it gives you the ability to live life on your own terms.

What’s the relationship between wealth and frugality, and between frugality and freedom? Building wealth requires savings and investment. That’s an unavoidable truth. But the harsh reality is that most Americans — by a wide margin — live paycheck to paycheck.

A recent study found that 78% have little or nothing left to invest at the end of the month. And we’re not just talking about people below the poverty line, or those living on minimum wage; nearly 30% of workers making between $50,000 and $100,000 per year live paycheck to paycheck.

Regardless of your income, chances are that you’re not saving and investing enough. But wherever you fall on the spectrum, being frugal can help you identify opportunities to spend less, save more, and use those funds to grow your net worth.

Growing your net worth gives you flexibility. Maybe not today, when you’re just getting started. But sooner than you think. When you start investing, your money goes to work for you, and you’ll be surprised how quickly your portfolio grows if you make a consistent effort to divert money into it.

And as it grows, guess what? You’re not quite as locked-in to staying at that job you hate. You increasingly have the ability to make choices about your future, instead of having them made for you. You start to see many paths in front of you instead of just a few. And, when you’re ready, you can finally jump off the hamster wheel.

Plus, as you gain more freedom in your life, you start viewing money in an entirely new way. Instead of always trying to spend the least amount of money, or trying to figure out how to make your money last to your next paycheck, you’re able to start making choices based around the concept of optimizing for your happiness rather than your necessities.

Reason #1: Frugality Can Improve Your Quality of Life

Being cheap is all about learning to settle. But frugality can help you live a better life. I know that probably sounds counterintuitive.

I bristle at the suggestion that frugality means giving up the things that bring you joy, learning to settle for inferior substitute products, or going through life feeling like every purchase that isn’t 50% off the sticker price is a failure. We all get one life. Just one. If that $5 latte brings you joy, I say drink it.

But that doesn’t mean you can ignore reality. That’s an expensive cup of coffee, and buying it means you can’t use those funds for something else. Budgeting is about priorities. And so is frugality.

It’s about identifying the things that are important to you and adopting corresponding financial habits. It’s about learning how to reduce wasteful spending so that you have more money left over for the things you care about.

In that sense, frugality is closely linked with the concept of opportunity cost, which simply means that everything you spend money on has both an explicit cost as well as an implicit cost.

Take that $5 coffee as an example. Its explicit cost is the $5 you hand over to the barista. When you buy it, you suddenly have $5 less in your wallet.

But was that the best possible use of $5? Would it have been better to invest it, pay off debt, or maybe even forego two cups of coffee a week so you can buy that new book you’ve been wanting to read?

Opportunity cost doesn’t mean you should never buy something if there might be a better use for the money. When it comes to frugality, it often means the opposite. Frugal people keep opportunity cost in mind because it helps them connect their financial behavior to their goals and values. For some, delicious lattes are important.

But for many others, spending $5 on coffee is just a habit. If you fall into that camp, then frugality might mean learning to make your coffee at home so you have more resources to invest (or spend on something else that’s more important to you). 

Reason #2: Frugality Doesn’t Have to Mean Trading Down

There’s a major flaw in the argument that frugality means consistently trading down. The reality is that many lower-cost substitute products, like clothes and store brand foods, are often not as good as their more expensive counterparts. I know that goes against the common wisdom in the personal finance world, but it’s true.

For example, the inexpensive “fast fashion” sold by H&M is inferior in quality to the clothes sold by similar but more expensive stores like J.Crew and Banana Republic. As a result, clothes from H&M need to be replaced more frequently. That’s by design: they’re made cheaply to be sold cheaply and replaced quickly. But if you have to replace them twice as often, they’re not a better value.

Similarly, while it’s true that some store brands are identical to their name-brand counterparts, often they’re not the same at all. Their lower prices are frequently the result of using lower quality (less healthy) ingredients; they might use high fructose corn syrup instead of raw sugar or honey, or they might contain added preservatives aimed at increasing the product’s shelf life.

I urge you to flip the script on frugality. Don’t think about it as trading down; think about it as trading up.

Think about it as learning how to trim the fat from your spending habits so that you don’t feel like you have to skimp on the stuff that matters. Frugality should be about learning to be smarter with your money so that you can make better purchases that bring you more joy, more satisfaction, and enhance your quality of life — not learning how to be content with less (that’s being cheap).

Instead of just trying to spend less, view frugality as a way to get more value out of your money.

How to Live Frugally: Three Key Concepts

Understanding the benefits I outlined previously is important, because frugal living requires you to change your mindset. It’s about more than clipping coupons or growing some of your own veggies.

Those habits will save you money in the short term, and they can be helpful. But frugality is a philosophical decision that gives you the opportunity to actively reshape your relationship with money. So rather than just showing you how to save a few bucks here and there, I want you to understand how this concept can help you take charge of your personal finances.

There are three core principles of frugal living. I call them The Three I’s, and they are:

  1. Intention
  2. Initiative
  3. Impulse control

Key Concept #1: Intention

Frugal living depends on your commitment to using your financial resources purposefully. Too often, people approach frugality with the vague goal of saving money. Without specific goals, you won’t have a framework for making decisions about when and how to use your financial resources. Additionally, you’ll have no way to evaluate whether your efforts are paying dividends.

Now, I’m not saying you need a detailed financial plan for the rest of your life before you start implementing frugal living tips. But you do need to define why you want to be frugal — because your goal will drive your actions.

If your goal is to take more vacations, your frugality might lead you to different decisions than someone whose goal is to save for their child’s college education.

Intention is also important because it helps you understand what not to do. If your goal is to build that college fund, then you’re making a decision that education is a priority. Adopting a vague overarching money-saving agenda could easily lead you to cut back in other areas that are associated with your child’s education.

If you make decisions for the sake of frugality without considering your long-term goals, your efforts might be for naught. So the first step is thinking about what really matters to you today, and what will matter to you tomorrow.

In other words, being cheap means you’re saving for the sake of saving. Being frugal means you take specific, intentional actions that are linked to your life and financial goals.

Key Concept #2: Initiative

Nothing we’ve talked about in this article matters without initiative. Being frugal isn’t always easy or convenient. It requires an ongoing commitment to learning about the best ways to use your money. And while there are some apps and services that can help you, the responsibility for knowing what constitutes a good deal ultimately rests on your shoulders.

So you have to understand that there’s no single service that’s going to magically shrink your shopping budget enough to really make a difference. There’s no one rewards program that’s going to fundamentally alter your financial trajectory.

But if you integrate these practices and others into every part of your life as a consumer, you’ll see them start to add up and build on each other.

Without initiative, here’s what happens: you end up paying more and getting less in return.


Because you’re leaving money on the table. You didn’t do your research and aren’t taking advantage of all the available opportunities to save.

This happens every single day. People go to the grocery store (without a shopping list) and don’t even bother to check the sales flyer or use the store’s loyalty program. They’re just flushing money down the drain.

But this also happens with almost everything in the economy: from banking to buying a home to buying a car.

Having initiative means that you put in the legwork to make sure whatever you’re purchasing offers a relatively good value compared to other options.

If you’re buying a car, you should walk into the dealership knowing how much the dealer paid for the vehicle. If you’re buying a house, you should know the full real estate history of the street and neighborhood.

But the same principle applies even when you’re buying something small. Knowing what an item should cost empowers you to determine whether you’re getting a good deal or a bad deal. And that empowers you to make better decisions. 

Key Concept #3: Impulse Control

So you’ve identified your goals, and you’ve started to take initiative. And everything is going great. You’re building up a saving account, little by little, and in a month or two you’re going to put a couple thousand dollars into an index fund.

But then again…

Wouldn’t your life be better if you had that new iPhone that was just announced? After all, your battery doesn’t work as well as it used to, and you’re afraid it’s going to die sometime just when the kids desperately need to reach you. And besides, you work hard enough, right? You deserve this.

Here’s the thing: You’re right. You’re absolutely right. Like I said earlier, being frugal doesn’t mean you have to live a life of self-sacrifice. The whole point is to have more freedom and live better.

But there’s a catch.

Does buying a new smartphone align with your goals? Is that purchase part of your “why” for learning how to be frugal, and would it represent a purposeful use of your financial resources?

Maybe one of the reasons you want to be more frugal is because you’re frustrated that you often have to go without the things you want. Trimming parts of your budget so that you have more disposable income to dedicate to other things is perfectly, completely and absolutely fine.

But on the other hand…

If your goal is to take more vacations, you might need to say “no.” If your goal is to build up that college fund, you might need to say “no.” If your goal is to grow your net worth so you can have more freedom and flexibility in your life, then you might say “no.”

Saying “no” is hard. And that makes impulse control the hardest part of living frugally for everyone. Even for me.

But that’s why we identified our goal. It’s our North Star. Our goal keeps us on the right track and helps us make better decisions that lead us to where we want to be.

Being cheap does not, because it doesn’t recognize that just having more money isn’t the end goal of saving. Being cheap doesn’t make space for you to think about the highest and best use of your funds — the uses the enrich your life and bring you joy.

Frugal vs. Cheap: Closing Takeaway

Remember, frugal living isn’t about pinching every penny — it’s about managing your money so that you get more or what you want out of life, not less.

R.J. Weiss
R.J. Weiss, founder of The Ways To Wealth, has been a CERTIFIED FINANCIAL PLANNER™ since 2010. Holding a B.A. in finance and having completed the CFP® certification curriculum at The American College, R.J. combines formal education with a deep commitment to providing unbiased financial insights. Recognized as a trusted authority in the financial realm, his expertise is highlighted in major publications like Business Insider, New York Times, and Forbes.

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