Advanced Personal Finance Test 1

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Behavioral Finance, Saving, and Budgeting

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19 Terms

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Loss Aversion
the tenancy to regard losses as considerably more important than gains of comparable magnitude.
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FOMO
the tenancy to feel anxiety/fear that an exciting or interesting event may currently be happening elsewhere, often aroused by posts seen on social media.
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Heard Mentality
the tenancy to conform to the behaviors and beliefs of the people around you.
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Sunk Cost
costs that have already been incurred and cannot be recovered.
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Sunk Cost Fallacy
the tenancy to make decisions about a current situation based on what resources you have already invested in the situation.
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Hedonic Adaptation
the tenancy to return to a baseline level of happiness regardless of whether you go through a positive or negative experience or event.
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3 reasons to save money
emergencies, large purchases, and wealth building.
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2 main strategies to save
50/30/20 rule, Pay yourself first
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50/20/30 Rule
the essentials, savings and debt, flexible spending
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where do you keep your savings?
not in a checking account
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why do you not keep your savings in a checking account?
you don’t want your savings to be easy to spend but yo also need to be able to get to it when you need it.
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Living Paycheck to Paycheck
using all or most of your monthly income on the things you need to live. Having no cash set aside for saving or investing.
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Steps for Saving Large Purchases
identify what needs to be bought, determine the cost, determine when it needs to be bought, divide the cost by the time, save taht amount each month.
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2 things you need to build wealth
money consistently invested, time
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Questions you need to ask to see if it’s an emergency
Is it unexpected? Is it necessary? Is it urgent?
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Gross Pay
total earnings before any deductions are taken.
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Net Pay
total earnings after payroll taxes and other deductions have been taken out; also called take-home pay.
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Fixed Expense
a cost that can be expected at regular intervals and that remains the same amount. (ex: monthly rent)
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Variable Expense
a cost that appears irregularly or that changes amount. (ex: utility bills)