Posted by Maneesh Sethi :: November 19, 2007 @ 12:14 pm

Are you cheap or frugal? Although everyone has different definitions for these words, here is how I use them:

• Being cheap - You are unwilling to spend money on anything. Even stuff you need. You go out of your way to save money, even when it might not be a great idea.

• Being frugal - You don't waste money. You spend it on things you need, and save it on things you don't.

Clearly, being frugal sounds better than being cheap--that's how I defined it. ☺ The problem with being cheap is that not spending money is actually hurting you or your finances, not helping you.

How can saving money hurt you? Well, take a look at this article from WiseBread. The writer's mom saves up ketchup packets, and when her ketchup bottle at home is empty, she cuts up each of the packets and refills the bottle.

That is being cheap, not frugal.

Now, maybe she enjoys cutting up the packets and she considers it fun and relaxing. That's a different story. But if she does it from a money-saving standpoint, well, that isn't very smart at all.

The money she saves by cutting up packets (what, maybe $2?) is not even close to being worth the time it takes to do it (1-2 hours, probably). In that time she could do a multitude of things that might make or save her money, like planning her finances, or working. However, even if she didn't do any of those things, she only saved $2 dollars. That amount of money isn't worth 1.5 hours of cutting and squeezing plastic packets.

The point of having money is to use it wisely. (On a side note, when the shampoo at my house gets to the bottom, my mom fills it with water and shakes it around and uses that. When I got to college, I was surprised that everybody didn't do that.)

Don't be cheap. Be frugal. Then take all the money you’ve saved and invest in P2P loans on Lending Club.