Yesterday I talked about hating the word “frugal.” Today I want to talk about how being “cheap” is better.  But first a little background.  The idea of frugal vs cheap vs thrifty vs whatever has come out of several conversations in the blogosphere and twitter over the last month.  It first struck me in a blog post from Just Thrive and most recently in some tweets with @moneymatters and @frugaldad.  The conversations are about as productive as debating the merits of Bud Light vs Miller Lite.  But they are fun.  Like Miller Lite, being cheap is hands down way better than frugal.

I like to think of myself as someone who is thrifty, one who is smart with their finances.  But at the most fundamental level I discovered I’m cheap.  I also discovered being cheap is better.  To learn why being cheap is better, we must learn more about frugality.

Re-read the definition for frugal from yesterday:

Avoiding unnecessary expenditure either of money or of anything else which is to be used or consumed; avoiding waste.

“Avoid” is a keyword in the definition. Avoidance in this case is the same as preservation, a defensive tactic.  A frugal person is interested in preserving their money.  We can restate that as saying a frugal person seeks to save their money.

At the other end of the court you have me, Mr. Cheap.  My interests are targeted towards accumulating as much money as possible to achieve certain goals. Tom Merritt would call this “a distinction without a difference.”  He’d be right to a certain extent.  One tool a cheap person would use is the defensive tactic of frugality.  But it isn’t their only tool.

Corporations are cheap.  Like a corporation, cheap people see they often have two options when it comes to reaching a goal. They can cut expenses or increase income.  Usually there is only enough resources to achieve the goal through one method.  A corporation cannot cut expenses and increase income.  They only have time to cut expenses to preserve income, or invent new ways to increase income.

This is the primary difference between a cheap and frugal.  Time is money to the cheap person. Why waste time learning how to make soap when you can bill overtime at work, promote your website further, or work part-time delivering pizzas?  The difference lies in aggression.  Frugal folks are passive, and cheap chumps are aggressive.

The goal-driven aggressiveness of the cheap chump will ultimately lead to more success when it comes to the bottom line, wealth.  The every man’s favorite frugal expert is Warren Buffet.  He has been known for eating at Dairy Queen, we can can obviously afford to buy Dairy Queen itself; or driving the same car for 20 years.  He made a name that way, but it isn’t how he made his money.  Driving a Cadillac into the ground does not make you a billionaire. He made his billions by being an expert investor.  Expert investors chase after companies, bully executives, and encourage the “spend money to make money” ethos needed for large scare growth (think Coke and advertising expenses, which Buffet’s company owns 13% of).

Citing Buffet for his frugality is like taking running advice from Lance Armstrong.  Sure Lance can run a decent marathon, but you only listen to him because he’s well known.  He’s well known for cycling, not running.  Buffet realizes that most of you won’t be billionaires, so he preaches frugality over goal-driven cheapness.

Ultimately, frugality vs cheapness is striving for a similar goal, wealth.  But the frugal-minded ignore half of that, which is chasing after money.  Cheap chumps keep their eye’s on the prize at all times, frugal folks keep their eyes on the sale rack.

By The Weakonomist

The Weakonomist is the founder of Weakonomics. Clicking the picture of the puppy will tell you more about him. If you like what you're reading consider subscribing to the blog, following him on Twitter, and checking out the related posts below. Please consider a donation if you really enjoy Weakonomics.

categories: personal, personal finance