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Are you frugal or cheap?

Frugality is the key to a financially stable life. If you are on the journey to financial independence, you already know that many wealthy people advocate frugality. A well planned frugal budgeting boosts you to achieve your financial goals and retire early. However, some have been taking frugality to the extreme, penny pinching simply for the sake of saving. Reducing expenditure is part of frugality. Being cheap is not. Although they overlap, they are vastly different in their core. Frugality is about assessing the long-term picture, maximising value at a lower cost and prioritising expenditure to have more time for the things you really care about. Being cheap is simply focusing on price as the bottom line and cutting costs. Learn from our article what being frugal means and how being cheap can harm your financial progress.

This post is not meant for people who need to be cheap to survive. Having the choice to be frugal is not a privilege many people have, and we acknowledge it.

Frugality is being mindful and strategic with your spending. It is a strong personal finance approach regardless of your objectives which gets you the most out of everything you buy. You are aware of your needs and wants and, instead of ignoring them, you are prioritising them in terms of spending. You do not have to go cold turkey on occasional splurges. Rather be mindful of their value and estimate the costs you are willing to pay.

On the other hand, being cheap may come out of necessity, which no one should be judging anyway. Some people choose to be cheap when there is no need to be, and it can cost you more in terms of money and time. Being cheap does not focus on anything else other than saving every penny. While being cheap may help you save more, you may miss out on a lot more. The following are some examples where people mistake cheapness with frugality, whereas it costs you a lot more:

  • Buying in bulk: Of course, buying in bulk is one of the most common methods to reduce cost while maximising the purchase. However, while it makes sense in theory, studies have found that bulk buyers throw out a lot more than people who buy small amounts more frequently. Bulk-buyers throw out almost 30% of the food they buy in bulk, essentially losing more money. This means food waste and an eventual rise in food prices that could have fed people facing food insecurity
  • Couponing: Couponing is a very useful tool to bring down costs and still enjoy your purchase. It makes sense when you are about to buy that item anyway, and having coupons to reduce price is a smart way of handling your spending. Coupons are unnecessary when they gear towards buying a specific brand that you would not have bought anyway (e.g. convenience food or very expensive brand). You will get burnt out as couponing is similar to a tedious chore that no one wants to do. And couponing is very difficult to practice anyway, as they have very limited time to redeem it or you need to spend more than reducing it
  • Do-It-Yourself: DIY can be rewarding both financially and mentally as you are not only minimising costs but also learning new skills. However, DIY is really not worth it when it impacts your safety, quality of life and overall productivity. Studies have found an increase in injuries as a result of attempted DIY home renovations. Outsourcing can sabotage your financial progress as you may find yourself spending more on the tools than you would have paid someone professional for the service. You are also wasting your time which could have been used on something more valuable. It's best to consider the value of your time rather than the work itself, as it could be used to actually be productive

Practising frugality is very subjective to individuals. There are some common steps you can take to be frugal:

  • Like you budget for your bills and necessary expenses, set aside a portion of your income for your personal activities. This will keep your budget intact and also motivated as you are not ignoring yourself
  • If you are consistently eating out or shopping, see if you can get loyalty programs, points or discount deals. Most shopping malls and groceries now provide loyalty programs that either provide discounts or offer free experiences
  • If you love travelling, check for airline points and credit card cashback to enjoy free experiences or activities at a discounted rate

Under the current financial climate, frugality manifests as reducing eating out, thrifting, and generally achieving goals at a reasonable expense. Frugality allows for activities and hobbies but at a more reasonable expense. Frugality does not recommend compromising physical and mental health, ignoring social needs or abruptly withdrawing from splurging just because it is not a necessity. Such goals are unrealistic and unsustainable and may cost you more in the long run.

Last update: 17/11/2021

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Disclaimer: Some text on this website is purely for marketing communication. Nothing published by Quanloop constitutes an investment recommendation, nor should any data or content published by Quanloop be relied upon for any investment activities. Quanloop strongly recommends that you perform your own independent research and/or speak with a qualified investment professional before making any financial decision.