Cheap or Frugal, which Are You?

Rich people are cheap! I normally avoid generalizations, but here a few examples to prove my point. J. Paul Getty, a certified oil billionaire had a pay telephone in his home, Warren Buffet drives a Cadillac (replaced his 8 year old car last year), and Donald Trump has his wife cut his hair.  Sure, you do not have to be rich to be cheap or frugal. Frugal is not cheap!!

Geography matters

In Los Angeles, I see rich people all the time! They drive Bentleys, Ferraris and other expensive exotic cars. They live in Beverly Hills and other parts of Los Angeles where homes begin at million or even multi-million dollar price tags. They own multiple homes, multiple expensive cars and many other trappings of what we think are rich or wealthy. Believe it or not, these rich people are the minority. In other words, these rich or wealthy people do not represent how wealthy people act.

Background

I grew up with very wealthy people! My parents would never identify themselves as rich or wealthy, however they were high net worth. They owned their businesses and had zero debt. Most of the people they knew were other business people and professionals. They did not show their wealth, but you know they were successful. Their values prevented them from displaying wealth in their homes, cars or other symbols of conspicuous consumption.

Their homes in many cases were custom, in good neighborhoods, but certainly not mansions. They had nice cars, but not necessarily expensive cars. Most of their money was invested in their businesses or elsewhere where it could increase over time. Were they cheap or just frugal? A definition of cheap is low in price or low cost. Another definition is purchasing something below the going price. Frugal on other hand is not spending a lot of money and not being wasteful. Use of coupons is frugal.

What’s the difference?

For me, the difference is simple. A cheap person always wants the lowest price no matter the value. The frugal person wants value for their purchase. When I was in business, I had to compete with low prices. I could never dissuade the cheap person who just wanted a low price. I provided a quality product although I was willing to discount it. You had to want quality and be willing to pay for it. Some of my customers would just go for the cheap product at a cheap price.

So, which are you? If you buy cheap products and do not care about quality, you are cheap. The irony is you are paying more because it wears out faster or provides low quality. A cheap tee shirt does not wash or wear well, but it is cheap. You do not have to pay that much more for something with quality. This is true for clothing, shoes, and many products. Another example is brand vs. generic products. Most generic brands are just as good as the national brands. The difference is marketing!

Rich people are frugal

Most rich people are frugal not cheap! They are value shoppers vs. just looking for a low price. They see the value of getting a nice house in a good neighborhood, a good car vs. an expensive car and know when to spend more for quality. When I bought my wife an engagement ring, I did not go to Tiffany & Co.; instead I went with a recommendation to a small old store in the diamond district in New York City. The owner even let me take the ring without buying it to have it appraised.

There are many different kinds of rich people both cheap and frugal. Most rich people are smart about their money and want value for their purchases although you could find a few who are not. There have been famous billionaires such as Mark Zuckerberg who could well afford many expensive exotic cars yet he drives an Acura. His first home was a paltry $1.9 million compared to his net worth of nearly 20 billion. Was he frugal or cheap? Since then he has bought more homes at various prices.

You too can have rich person values 

You do not have be rich to have their values! I think like a rich man all the time! I believe in buying based on value not price. I start with quality and then get the best price I can get. I use that approach for all of my purchases including medical treatment. It usually does not cost more to have a good doctor vs. any old doctor. I usually go to what I call doctors’ doctors. These are the doctors; they go to when they are sick. I am buying competence and value. It may not matter if I have a cold, but it could be my heart.

Final thoughts

Cheap or frugal may not matter to most of us, however it should. Just getting the lowest price reminds me of government contracts where the lowest bid gets the contract. Meeting high standards and getting the lowest price is common in the electronics industry or certain government contracting such as NASA or military contracts. The differences define the difference between cheap and frugal. Wealthy people have choices how they spend their money and they usually spend it better than most. Whaich are you, cheap or frugal?

Photo by:  Flickr