Behavioral Financial Planning Chapter 4

Behavioral finance = Study of psychological influences on investor behavior Leisure outlays = Expenditures on non-essential activities Opportunity cost of time = Value of the next best alternative use of time Utility = Satisfaction or benefit derived from a good or service

Budget constraint = Limit on spending based on income Capital expenditures = Investment in long-term assets Nondiscretionary expenses = Fixed costs that must be paid regardless of situation Discretionary expenses = Variable costs that can be adjusted

Life cycle theory = Financial planning across different life stages Modern portfolio theory (MPT) = Optimizing risk and return in investments Theory of consumer choice = Decisions made by consumers to maximize satisfaction Total portfolio management (TPM) = Holistic approach to managing investment portfolios

<p>Firm = Business entity that sells goods/services for profit Household = Basic economic unit composed of individuals living together Household enterprise = Business operated by individuals or families from home Household finance = Management of finances at the household level</p> Signup and view all the answers

<p>Maintenance costs = Expenses incurred for upkeep of physical assets Overhead costs = Operating expenses not directly tied to production Consumption bundle = Combination of various goods and services consumed Firm = Entity that incurs costs and generates revenue</p> Signup and view all the answers

<p>Discretionary expenses = Expenses that can be adjusted or eliminated Nondiscretionary expenses = Fixed costs that must be paid Leisure outlays = Expenditures for entertainment and relaxation Opportunity cost of time = The value of time given up for other activities</p> Signup and view all the answers

<p>Life cycle theory = The consumption patterns over a person's lifetime Modern portfolio theory (MPT) = Investment strategies for risk and return Theory of consumer choice = Decision-making process for purchasing goods Total portfolio management (TPM) = Comprehensive management of investments</p> Signup and view all the answers

<p>Capital expenditures = Investments in long-term assets Budget constraint = Limitation on spending based on income Behavioral financial planning = Incorporation of psychological factors in finance Firm = An organization engaged in commercial activity</p> Signup and view all the answers

<p>Household = A group of individuals living together Household enterprise = A business operated by household members Consumption bundle = A set of goods and services consumed together Maintenance costs = Expenses related to upkeep of resources</p> Signup and view all the answers

<p>Overhead costs = General operational expenses of a business Capital expenditures = Purchases of equipment and property Discretionary expenses = Dining out and entertainment spending Nondiscretionary expenses = Utilities and mortgage payments</p> Signup and view all the answers

<p>Behavioral financial planning = Incorporates psychology into financial decision-making Budget constraint = Limits on spending based on income and resources Capital expenditures = Funds used by a firm to acquire or upgrade physical assets Leisure outlays = Expenses related to recreational activities</p> Signup and view all the answers

<p>Discretionary expenses = Non-essential expenses that can be adjusted Nondiscretionary expenses = Essential costs that are fixed and unavoidable Maintenance costs = Expenses incurred to keep an asset in good condition Overhead costs = Regular ongoing expenses of operating a business</p> Signup and view all the answers

<p>Life cycle theory = The model that describes changes in consumption patterns over a lifetime Theory of consumer choice = Explains how consumers make decisions based on preferences Opportunity cost of time = The potential loss from not using time for the next best alternative Household enterprise = A business run from a home with the involvement of household members</p> Signup and view all the answers

<p>Modern portfolio theory (MPT) = A method for optimizing the balance of risk and return in a portfolio Total portfolio management (TPM) = An approach that manages all of a client’s investment assets Consumption bundle = A combination of goods and services consumed by a household Utility = A measure of satisfaction or benefit derived from consuming a good or service</p> Signup and view all the answers

<p>Firm = An organization that sells goods or services for profit Household = A group of individuals living together who share resources Household finance = The study of how households manage their financial resources Capital expenditures = Long-term investments to improve or acquire assets</p> Signup and view all the answers