I’m just going to come out and say it – I hate when people are cheap. If there’s any advice you ever take away from this site, let it be this: Be frugal, don’t be cheap.
I started ‘The First Million is the Hardest’ partly because I got sick of reading so many personal finance articles advocating cheapness. To me, advice like “Cut out your morning Starbucks trip and you could save $600/year!” is just bad advice. Sure it may be true. But if going to Starbucks (or Tim Horton’s in these parts) every morning is what keeps you from losing your mind at your job, why should you have to give that up just to save a few bucks? Being frugal is a good thing, being cheap is not. Hopefully in this article I can make the difference clear.
We all know cheap people. They don’t throw in for gas on a road trip, they avoid buying a round of drinks at the bar and they leave crappy tips for the server at the restaurant. They are the same people who will then turn around and hound you like a loan shark over that $10 they lent you last week. Don’t be that guy (or girl)!
In contrast, frugal people don’t pinch penny’s. Frugal people budget wisely and spend freely on things they enjoy. A frugal person may well decide to opt out of all those morning Starbucks trips. But it’s not because they think that $4 every morning is the difference that will make them rich. It’s because they’ve budgeted their money and decided they’d get more enjoyment out of spending that money on new clothes or on tickets to a concert.
Short vs. Long Term Solutions
In my mind cheap people try to get rich in the same way lazy people try to lose weight. Not buying your morning coffee or leaving a $2 tip instead of $6 isn’t going to make you rich. The same way that ordering a Diet Coke with your Big Mac isn’t going to help you lose 15 pounds.
Don’t look for the easy way out. Pinching pennies will fail to make you rich for the same reason that the newest fad diet will fail to make you keep those pounds off. They’re narrow, short-term solutions to a long-term problem. Getting rich, just like getting in shape takes a wholesale change.
If you want to get (and stay) in shape you have to make big changes to the way you eat and the way you exercise. The same principle applies to getting rich. Worry about the big things, not the little ones. There are too many people blaming the price of gas for their struggles while they drive around in the huge SUV financed from one of those “we approve ANYONE!” car dealers.
Spend On What YOU Love
I consider myself a frugal person. I make a regular, healthy contribution to my 401(k). I make regular contributions to my Roth IRA. 10% of my paycheck goes directly into my savings account. I have a budget and I stick to it. One other thing I also do, is I spend freely.
It may come as a shock to a lot of people, but you CAN be frugal and enjoy life TODAY. For example, I’ve spent $600 (and counting) on concert tickets so far this summer. How can I do that you ask? Well, going to concerts is my thing. It’s what I love to do, so I don’t mind spending money on it.
I have a financial plan, once my retirement accounts are funded, my bills are paid and I’ve put something in savings the rest of my money is fair game. I weigh the opportunity cost of the money I spend. Some people (such as my girlfriend) buy lots of clothes and shoes. Some people travel the country, some just party a lot. I don’t do much of those things. Instead I go to concerts. And you know what, all of it is OK as long as you’re doing it after your other financial responsibilities are taken care of.
If you like buying $200 pairs of shoes, be my guest. If that’s what you’re happiest spending that money on I’ll never judge you for it as long as you’re cutting back on the things that aren’t important to you.
So you see, being frugal doesn’t mean cutting corners and hording away every penny you can. It means setting goals, budgeting and getting the most value out of each dollar you spend.
So let’s hear it all you frugal people…after you’ve budgeted and saved, what is it that you love spending your money on?