If you can think of "thriftiness" as rational and economical and "cheapness" as fearful and "of low value", then the differences will become obvious.

Many people have this idea that budgeting is primarily about cutting costs and living on less. While that can certainly be true, it's not the primary purpose of budgeting. Budgeting is an organizational process. Being thrifty or being a "cheapskate" is a mindset or behavioral habit that people learn and then associate with good money management skills.

Unfortunately, more people automatically gravitate towards the "cheap" attitude when trying to save money rather than create a real financial plan. Being cheap stems from the attitude of scarcity-particularly the idea or fear that you might run out of money. But, people rarely, especially in America, go broke overnight. Going broke usually happens slowly, over time. The "cheap" or "penny pincher" individual operates under the conscious or subconscious idea that he (or she) must spend as little as humanly possible on anything and everything simply for the sake of spending less or being cheap.

In order words, spending less becomes an end in itself instead of a means to an end. This is the crucial difference between a "cheapskate" and a thrifty individual with a real financial plan. What the cheapskate never realizes is that a real, principled, financial plan will go a long way to make sure that you don't "go broke"-ever (and you can ditch the guilt and anxiety that can result from living with a cheapskate).

So, instead of "being cheap", make a real financial plan. That way, you don't have to worry about how much money you spend, whether you can or can't afford life's "surprises", or how much to save for retirement. In other words, you can truly enjoy life.

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This entry was posted on October 21st, 2009 by David C Lewis, RFC. Edits may have been made to keep this entry current. · No Comments · Budgeting & Money Management