Here’s a quick challenge for you – compare the lives of these three coffee lovers…
The first guy, who we’ll name “John”, likes to grab a Venti Latte from Starbucks every morning on his way to work. From time to time, particularly when he feels overwhelmed, he proceeds to buy another cup or two during the day. Each of these Starbucks orders cost him $4.15.
Jim, on the other hand, prefers to pick up his lattes from Dunkin Donuts. For that, he pays $2.49, which translates to a savings of almost $2 for each cup of coffee.
That’s not all. It turns out that while the Starbucks’ latte comes in a basic venti cup, Jim’s $2.49 earns him a large-sized latte from Dunkin Donuts.
One heck of a deal you think?
An Example of Being Cheap
If you find Jim’s savings impressive, our third character will knock your socks off.
Let’s call him Jake. And yes, he likes coffee too. But, unlike the other guys, he often chooses to forgo his latte for the sake of saving a couple of dollars every morning. And that, of course, gives him an edge over both John and Jim.
Now, here’s the question – who would you want to be?
Ok, not John, obviously. So that leaves us with two options – Jake and Jim.
Well, this right here, ladies and gentlemen, is the fine line between frugality and being cheap.
The Difference Between Frugal Vs. Cheap
For the sake of clarity, I don’t have anything against Starbucks. Although they make great coffee, $4.15 for a venti latte is a bit on the high side.
Dunkin Donuts’ latte certainly sounds like a better deal. But, in the long run, Jake’s accumulated savings makes him look like someone who’s got their personal finances all figured out.
However, while he might be saving more than Jim and John combined, it comes at a huge cost. He’s sacrificing even his basic pleasures to salvage everything, down to the last coin.
There’s a name for Jake’s way of life. It’s called being cheap.
Don’t get me wrong. While we’ve always encouraged you to incrementally grow your savings, there comes a time when you need to draw a line between healthy and unhealthy habits.
Healthy Vs. Unhealthy Cost Savings
Unhealthy savings are made by cheap folks who overstretch themselves to the point of sacrificing all comforts of life. They deprive themselves of all pleasures for the sake of saving that extra penny.
A frugal person, on the other hand, knows exactly how to balance everything. Instead of sacrificing the necessities in life, they cleverly find cost-effective options that offer the best value.
This is where we categorize the likes of Jim. Unlike the spendthrift John, he took the time to find himself a much cheaper alternative without compromising on quality.
Dunkin Donuts may make cheaper lattes, but they taste just as good as – or possibly better than – than Starbucks’ coffee. To top it off, Jim even manages to get his orders in larger cups.
4 Frugality Tricks That Won’t Hurt You
That’s how frugality works. The principle is replacing costly necessities with cheaper high-quality alternatives.
Here are 4 basic tricks to start you off:
1. Spread Out Your Spending Sprees
Let’s face it. We all find ourselves splurging from time to time on things like luxurious holidays, shopping sprees, parties, you name it. Sadly, the fun often ends in guilt because of the huge dent put on savings.
You could solve the problem by using a frugal approach. Instead of doing away with splurges, you could decrease their frequency by spreading them out.
You could, for instance, minimize vacation costs by limiting the number of holidays taken per year. This would still keep you fulfilled, but with a fatter savings account.
2. Forget About Your Bonus Income
I know how exciting a bonus check can be. But for some strange reason, they always show up right when you need them the most. So, in most cases, they don’t stay around for long. We often splurge our bonuses just as fast as we earned them.
Well, now’s the time to change this trend. The best way to do that is by adjusting your perception of bonus earnings. Rather than treating it like some form of petty cash, reroute all your bonus income to your savings account and try to forget you even earned it in the first place. Your day-to-day budget should only be drawn from your regular earnings.
That’s how you get to significantly bump up your savings over time.
3. Avoid Extra Fees
They say it takes money to make money. But, as it turns out sometimes it takes money to process and spend money.
I’m talking about those pesky fees that you’re always charged for transactions such as ATM withdrawals, card payments, money transfers, and more.
You’re probably guilty of ignoring these extras. That’s understandable, because in most cases, they come in the form of small, negligible amounts.
It just so happens that’s exactly what financial institutions count on. They consistently squeeze money out of transactions because people seem not to mind those little credit charges.
Now, imagine how much they make off your transactions in, say a year?
To turn the tables, you might want to start looking for cheaper or free alternatives. For instance, if paying your bills digitally attracts processing fees, switch to checks or cash payments. Additionally, you should review various financial service providers based on the transactions you frequently conduct, and then move to the one with the lowest fees.
Those little savings add up quite significantly over the long haul.
4. Buy In Bulk
Cheap people hate the huge expenses that come with bulk purchases. Instead, they prefer to buy stuff in small, cheap packages. This gives them the satisfaction of spending less whenever they shop.
However, such habits end up costing way more than they would have spent on bulk purchases.
You see, the economies of scale allow businesses to offer discounts when you buy in large quantities. And this applies across the board. Even a product as negligible as soda is cheaper per unit when you choose a bigger bottle.
That said, don’t make the mistake of always buying everything in bulk. Just prioritize the few necessities that you’ve been replenishing frequently, such as foodstuffs.
Where Do You Stand – Frugal or Cheap?
Going by these insights, we can now conclude this: A cheap person always tries to spend less by using price as the bottom line, while frugal folks prioritize spending by relying on value as the bottom line.
Now, which of these two would you say describes you better?