When Going Cheap Is a Bad Idea

I still remember the moment when I realized I was starting to cross the line from frugal to cheap.

I was pumping gas into my vehicle after buying groceries for my family, which is normal, right? The problem is that I had driven about five miles out of my way to get slightly cheaper gas. While I was getting out to pump gas, a friend of mine called and asked me if I wanted to go to a pub trivia night at a bar that charged quite a bit for drinks and snacks. I thought about the cost and turned him down.

As I stood there, I realized that I had just driven halfway across town to save maybe $2 on gas, while at the same time I had declined to spend an evening with a friend that would have cost me $20 at most. Did I value $2 more than the time I spent driving over here? Did I value $20 more than an evening with a friend, particularly one who was often willing to have potluck dinners with us?

I wasn’t being frugal. I was being cheap.

In this article

Frugal versus cheap

While the difference between being frugal and cheap might be intuitive, it’s useful to nail down what each of those things are and what the difference is.

Frugality is simply being economical or efficient with your money. When you’re being frugal, you’re attempting to continue to have high-quality outcomes, but you’re trying to do so with less expense. Installing energy-efficient appliances is frugal. Making meals for yourself at home when you’re eating with just your immediate family is frugal. Adopting daily habits that bring the joy with less expense is frugal.

Cheapness happens when that drive to be economical or efficient with your money starts to result in negative outcomes for other things you care about in your life. Cheapness happens when your drive to save starts impacting friendships or causing you time management stress. Cheapness happens when cost-cutting makes normal things harder to do and you’re not happy about that difficulty change.

Frugality is wonderful. It’s a financial tool every one of us has within our grasp to help us achieve financial goals, both short term and long term.

Cheapness is not wonderful. When we pay the cost of spending less money by sacrificing our time, our relationships and our mental well-being, we simply pay too much in terms of a healthy all-around life.

Be frugal. Don’t be cheap.

How going ‘cheap’ can cost you

Saying a hard ‘no’ to friends can damage friendships

A good friendship incorporates balance. Sometimes, you’ll do things that you choose, and those can be frugal. Sometimes, you’ll do things your friend chooses, and that might be expensive. Don’t just say “no” when they suggest expensive things if they’re saying “yes” when you suggest frugal things.

For example, one of my oldest friends loves going on hikes and playing board games – both very frugal activities, but also has a taste for going out for fancy meals. There’s a balance there. On the whole, hanging out with him is rather inexpensive, even if there are expensive moments.

If you’re finding that a friendship is “expensive” because it always centers around expensive things, suggest some less expensive things as a counterbalance. Your friend might surprisingly enjoy it. Furthermore, you’ll discover whether this person is a friend who enjoys your company or an acquaintance who just enjoys the activity. It may be a true friendship, or just a friendship of utility or pleasure.

Scrimping can harm relationships

This doesn’t mean you should always spend, spend, spend with other people. Rather, it means that there needs to be a healthy balance between minimizing costs and maximizing fun, and if you’re going to err, err occasionally on the side of fun.

For example, having a potluck dinner party is great, but don’t serve the cheapest main dish you can think of. Instead, come up with something people will genuinely enjoy. You don’t have to go high-end, but prepare something delicious and crowd-pleasing with good ingredients.

Your guests will feel loved and welcome and you’re still being frugal.

Spending lots of time for a little money can cause stress

One temptation that crosses the line from frugality into cheapness is the desire to invest lots of time and energy into something that doesn’t save a lot of time and money. In general, if you’re investing time into a frugal project that’s not bringing you other kinds of joy and you’re not saving significant money per hour of time invested, it’s probably not worth doing. This is particularly true when you’re starting to feel stressed about not having enough time for important things in your life.

An example of a frugal activity that can have rapidly diminishing returns is couponing. In general, the time investment in couponing versus simply planning meals around what’s on sale and buying store brands isn’t a great bargain. Having said that, there is definitely a “game” to be played with couponing, and that game is enjoyable to some. If that’s you, then by all means treat it as a recreational activity that happens to save you a little money.

It’s great to find inexpensive hobbies or even hobbies that can save you money, but those things are hobbies first and foremost. It’s OK to drop time-consuming frugality that isn’t a hobby for you.

Go for the big wins

When you’re trying to cut spending, it can be easy to get fixated on small gains, particularly if they’re frequently repeated. If you can cut back a quarter a day in spending with little effort and no lasting drawbacks, that’s going to add up.

Where this can cross the line into cheapness is when you find yourself worrying about smaller and smaller gains, particularly one-time gains. Don’t worry about the decision to toss a $1 item and replace it with something better. The stress over that decision is more costly than the dollar.

If you find yourself worrying about little expenses, think about the actual size of the savings and how much time you’d have to invest to get that savings, and ask yourself honestly if it’s worth it. If you’re stressing over a small savings, or even a moderately sized one with a time investment, just let it go. Think about the big wins, and don’t sweat the small ones.

Use frugality to achieve your goals 

Most people use frugality as a tool to achieve their life goals, things like paying off debt or saving for retirement. Those things are empowering.

However, don’t lose sight of why you want those goals. Things like a nice home or debt freedom or a secure retirement are intended to bring you joy and contentment. Being cheap often brings stress, damaged relationships and negative health impacts — the opposite of joy and contentment.

If a frugal choice does not feel like a clear “win,” don’t do it. If it’s introducing enough drawbacks that you feel stressed, that you’re negatively impacting a relationship, or that you feel worried and preoccupied, it’s not worth it, particularly when it’s only producing a tiny step toward your goal.

Another tip: Frugality isn’t helpful in and of itself. While saving money is always great, if you’re simply spending it on something else that’s nonessential, you’re not getting ahead. Frugality should help you achieve your goals. Keep track of what you’re actually saving by being frugal, then automate your savings. Set up an automatic transfer into an emergency fund in an online savings account or bump up your automatic retirement contributions.

We welcome your feedback on this article. Contact us at inquiries@thesimpledollar.com with comments or questions.

Source: thesimpledollar.com

5 Keys To Overcoming The Urge To Splurge

Christmas Is For Debt?

Christmas will soon be upon us with all of the good cheer, family get-togethers and presents!

All of the big department stores are already in full-on Christmas mode, with aisles upon aisles of decorations in the front of the store and Christmas music pumping over the PA systems.  It’s hard not to get  into the Christmas spirit and spend, spend, spend!

Christmas time can be one of the most expensive times of the year, and a lot of people blow out their budgets trying to give each other a “nice Christmas”.  In fact, a Consumer Reports poll found that many people are still paying for last year’s Christmas bills.  if you do the math – that means approximately 12 million of us!:

Six percent of those surveyed are still paying off debt from last year’s gift purchases. If you do the math, that translates into approximately 12 million Americans who are in hock to credit-card companies for this reason alone.

This year, let’s try to be more responsible with our purchases, and think before we act and go into credit card debt.  In fact budgeting for Christmas expenditures earlier in the year is the best way to go.  Make it a line item in your budget!

5 Keys To Having Power Over Your Purchases

Dave Ramsey suggests that you work on developing a “power over purchase”, and make better buying decisions. You can do that by:

  1. Waiting overnight before making a purchase.  We often get caught up in the emotion of the moment, picture ourselves using the purchase, and how much it would make our life better.  Wait overnight and take some time to think about it.
  2. Carefully considering your buying motives.  No amount of stuff equals contentment or fulfillment: A lot of times we buy things because we think it will make us look cool, or be a status symbol.   In the end things just leave us feeling empty.  Remember, you can buy fun, but you can’t buy happiness.
  3. Never buying anything you do not understand: Don’t ever buy something without first knowing exactly how it works, what it does, and how to use it.   Don’t understand how that variable annuity works? Don’t buy it until you’ve researched it and understand how it works.  Too many people waste money on things they don’t understand, and will never use.
  4. Considering the opportunity cost of your money:  Remember, if you spend money on that new car, you may look cool driving around, but you’ll never make back that $25,000 you spent on the car – which you could have invested in a good mutual fund and been appreciating, instead of depreciating.  There is an opportunity cost to everything you buy.
  5. Seeking the counsel of your spouse (or accountability partner):  If you’re considering making a purchase, make sure to seek the counsel of your spouse or a trusted accountability partner.  Often they can tell you when you’re making a rash decision, and convince you to forgo a purchase.

Remember, when you’re making buying decisions, especially for items over $200-300, it can be very easy to become emotionally involved, and make rash decisions. Studies have found that most people actually have physiological reactions to when they’re purchasing something over $300. Their heart rates speed up, they get sweat on their upper lip, they feel nervous, etc. Keeping the above tips in mind will help you to overcome those emotional reactions, and get on your way towards a debt free new year in 2009!

He who is impulsive exalts folly.– Proverbs 14:29  (NKJV)

What do you think about Christmas debt?

Have you ever ended up paying your Christmas debt until the following Christmas? Do you think budgeting for the expenses may have helped you to avoid going into credit card debt? Are you making different Christmas spending decisions this year, or do you feel that Christmas is just too important to cut back on the spending?

Let us know what you think in the comments!

Source: biblemoneymatters.com

Balancing Biblical Financial Principles Of Contentment, Hard Work, Stewardship And Generosity

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As I’ve studied personal finance in the Bible, I’ve found four main financial principles that God emphasizes, repeatedly.

Those principles are contentment, hard work, stewardship, and generosity. As I’ve written about these principles and discussed them with others I’ve discovered that balance is absolutely essential. When we overemphasize any of these four principles it can be detrimental to how we are honoring God through our finances.

To get a better idea of what I’m saying, let’s look at what happens when you focus too much on just one of these principles and downplay the rest.

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