Money Basics
These are the three functions of money
What are Medium of Exchange, Unit of Account, and Store of Value?
Food, shelter, and clothing are examples of this.
What are needs?
This term means the value of the next best alternative you give up.
What is Opportunity Cost?
This is what we call a plan for your money.
What is a budget?
Grabbing a candy bar in the checkout lane is an example of this.
What is impulse spending?
This is assets - liabilities = ?
Net Worth
A car may be considered this in a city with public transit, but a need in a rural area.
What is a want?
This mindset focuses on options, growth, and “both/and” thinking.
What is abundance mindset?
In the 50/30/20 rule, this percentage is supposed to go toward savings.
What is savings?
When someone’s income rises and they immediately increase their spending, it’s called this.
What is lifestyle creep?
A savings account is an example of this, while a credit card balance is an example of this.
What are Assets and Liabilities?
Advertisers often blur the line between needs and wants by using these tactics, such as FOMO or social proof.
Sticking with a familiar choice even when better options exist is an example of this bias.
What is status quo bias?
In this budgeting method, every single dollar has a job, and the goal is to reach zero at the end of the month.
What is zero-based budgeting?
Buying things just to match your peers is known as this.
What is 'Keeping up with the Jonses'?
One of these is money going in, the other is money going out.
What are income and expenses?
A gym membership or a concert ticket wouldn’t count as a need but could be justified using this part of the decision rubric.
What is well-being/joy? (or Happiness)
Preferring $20 today over $25 next week demonstrates this bias.
What is present bias?
This budgeting method uses cash or digital “folders” to prevent overspending.
This bias means that losing $20 feels worse than finding $20 feels good.
What is loss aversion bias?
If you have $4,000 in assets and $1,500 in liabilities, this is your net worth.
What is $2,500?
Not all emotional purchases are bad--but they tend to be bad when they are made out of this
What is impulsivity? (or fear/anxiety/boredome/or FOMO)
Refusing to quit an activity because you already invested time or money into it is an example of this fallacy.
What is sunken cost fallacy?
If you earn $2,000 a month, and rent ($1,000) and food ($300) are your expenses, this percentage of your income is already going to needs.
What is 65%?
This strategy involves setting up systems like auto-savings or app limits to help prevent bad habits before they happen.
What is a commitment device?