20 Common Investment Mistakes and Five Simple Steps to Avoid Them

 
I recently came across a wonderful document published by the CFA Institute entitled Tips for Avoiding the Top 20 Common Investment Mistakes.

(The CFA Institute is the organization that manages the CFA, or Chartered Financial Analyst, certification program, which is an extremely robust certification for financial professionals, so much so that many other organizations simply accept that certification as a qualifier to bypass entrance exams and other certifications. Someone who is able to pass CFA exams knows their stuff.)

I often find myself disagreeing with materials produced by the financial planning industry, as most of their material is geared toward people signing up with a financial advisor, but I was more than pleasantly surprised by this document. It’s just as applicable to investors who are not using a financial planner as it is to people who choose to do so.

As I often do when I find documents like this, I start adding my own notes and thoughts all over the place, so I thought I would share the investment mistakes from the document along with my own notes on each mistake.

20 Common Investment Mistakes

Mistake No. 1: Expecting too much or using someone else’s expectations

Like it or not, the simple act of investing alone won’t solve all of your financial problems. It’s easy to think that because you’re now investing, everything will be perfect and all of your problems are solved. This is especially true when you listen to investment advisors who promise outsized returns.

I’ll give you a hint – you’re simply not going to beat the returns of the stock market over the long term, and probably not over the short term. People like Dave Ramsey suggest unrealistic expectations (he suggests a 12% average annual return, which isn’t based in any sort of reality).

The best thing for any investor to do is to keep their expectations within reality. Look at what the stock market actually does, not just in one year, but over a lot of years, and use those numbers for your expectations.

Mistake No. 2: Not having clear investment goals

For most people, this isn’t an issue – their goal with investing is to have a stable income in retirement to supplement their Social Security. This is about as easy as can be, with both employee-sponsored and individual plans within easy reach of pretty much everyone. Most retirement plans make working toward that goal really, really easy by offering target-date retirement funds.

Where this gets tricky is when people are investing for reasons besides retirement. If you’re not investing in retirement, you need to figure out exactly why you’re investing, how far off that goal is, and how much risk you can tolerate along the way.

Mistake No. 3: Failing to diversify enough

Diversification in investments simply means having your money spread across a lot of different things. Ideally, you’re spreading your investment money across completely different types of assets – cash, bonds, stocks, real estate, maybe even things like precious metals or collectibles.

The reasoning is easy – just because one of those things drops in value doesn’t mean that the others will, so if you have your money spread across all of those things, you won’t suffer if, say, the stock market takes a dive.

Some things even work in reverse: For example, historically, bonds do well when stocks take a dive and vice versa. The problem is that most people don’t diversify very much, especially when it comes to the things that are most important, like retirement savings.

Mistake No. 4: Focusing on the wrong kind of performance

The stock market can jump or drop multiple percentage points in a single day, and that can be a really bumpy ride for some people. If you have $100,000 in the stock market and it drops 4% in a day, you’ve just lost $4,000. That’s enough to make some people panic.

The thing is, if you’re invested in the stock market, the short term shouldn’t matter at all to you. What matters in the long term, and over the long term, the stock market has a fairly steady (although bumpy) upward trend. If you push the panic button because of one down day, or one down week, or even one down year, you’re going to end up hurting yourself big time.

Mistake No. 5: Buying high and selling low

Many people’s instincts tell them to buy stocks after a day or a week where they’ve done really well. Stocks have gone up 10% in the last quarter, they must be hot, I should buy-in! Unfortunately, that’s buying high.

On the other hand, people often instinctively sell when an investment drops rapidly. They see losses over the last month or quarter and they get scared and panic. That’s selling low.

Buying high and selling low are strategies that are going to fail you over and over again. A much better approach: Ignore the lows and highs, buy a little bit each week or each month, and then sell when you need to.

Mistake No. 6: Trading too much and too often

Some people get really into the “game” of playing around with their investments. They’ll react to the news that they hear and move their investments around all the time. The problem when you do that is that you tend to generate lots of transaction fees as well as lots of tax implications.

Many brokerages charge you every time you buy or sell an investment, which can add up extremely quickly if you’re buying and selling too often. Those transaction fees chew up and swallow your gains quite quickly.

Beyond that, it can quickly turn your tax situation into a mess, with a mix of short- and long-term capital gains and losses that could result in a painful tax bill, too. You’re almost always better off making a diversified plan and sticking with it right off the bat.

Mistake No. 7: Paying too much in fees and commissions

Different brokerages charge different fees when you buy and sell investments. Not only that, commission-based financial planners like to get their piece of the pie, too. If you’re using a high commission planner and also investing in something that has high transaction charges, your money is going down the drain.

You’re far better off figuring out how to do these things yourself and finding investment opportunities that come with little or no transaction fees. I use Vanguard for almost all of my investments and if you invest directly with them and buy their funds, there are no transaction fees or commissions at all.

Mistake No. 8: Focusing too much on taxes

People often focus intensely on the tax consequences of their investment decisions, often to their own detriment. Yes, making a move to help you pay lower taxes can be a good thing, but the taxes a person pays on investment gains are often insignificant compared to having a good investment strategy for your goals.

If an opportunity comes up that can help you lower your taxes without losing investment gains, you should, by all means, take advantage of it, but if you’re making investment choices primarily to avoid paying a few dollars to Uncle Sam, like putting your money in a 401(k) with terrible options instead of a Roth IRA with great options so you pay fewer taxes this year, you’re almost always guaranteeing yourself a worse outcome.

Mistake No. 9: Not reviewing investments regularly

If you’re actually diversified into several different investments, some of those will have better returns than others in a given year.

Let’s say you want to maintain a 50/50 split between the two investments in your portfolio and, at the start of the year, you have $50,000 in each. However, during the year, the first investment goes up 20% while the second stays steady. You now have $60,000 in the first investment and $50,000 in the second, which is more like a 55/45 split.

If that keeps up, you’re going to be way off track. The solution is to check in on things every once in a while and then adjust your contributions to keep things in the balance that you desire.

Mistake No. 10: Taking too much, too little, or the wrong risk

Too much risk and you’re prone to panic and also to having a lower-than-expected balance at that moment when you want to make a withdrawal. Too little risk and you’re not going to get as much investment growth as you should.

If you’re not sure what to do, figure out your target date for your investments and look at what a target-date retirement fund for that date is doing, as that’s the kind of investment portfolio and level of risk you should be considered as a starting point.

Mistake No. 11: Not knowing the true performance of your investments

It’s great if some of your investments are doing really well, but that doesn’t mean that things are good overall. Your success isn’t judged on your best investment, nor is your failure based on your worst. What matters is that you know how everything is doing and that you keep them in balance by tweaking your contributions.

Mistake No. 12: Reacting to the media

The media always loves to hype things. The media also loves to hit that panic button hard.

One day, they’ll work to convince you that you need this or that investment because it’s the hottest thing in town. The next, they’ll tell you that everything is falling apart and the sky is falling.

Usually, neither one is true. The media simply knows that hype and fear are the things that attract viewers and readers. Be calm and measured – don’t fall for the media hype cycle, especially when it comes to your investments.

Mistake No. 13: Chasing yield

It is always tempting to jump into whatever investment happened to have the best returns during the last year or the last three years. If you see another investment similar to yours with a better return, why not jump to it?

First of all, past performance is not indicative of future returns. On top of that, the higher the yield, the higher the risk (in general). If you jump to a similar investment with a higher short-term yield, there’s a very good chance that the next year will be worse than what you already have, plus you’ll have to deal with transaction fees.

Mistake No. 14: Trying to be a market-timing genius

It is simply impossible to guess when the market is at a peak or when it is at the bottom of a decline. There is so much day-to-day variability in the stock market that guessing such things is essentially impossible. Of course, chasing that kind of market timing is going to trigger a bunch of transaction fees and absorb a bunch of your time. You’re better off just investing with automated regularity and not moving your investments around.

Mistake No. 15: Not doing due diligence

Just because some article suggested investing in something or some talking head on television said that a particular investment was amazing doesn’t mean that it is something you should be putting your money into.

Quite often, mentions in the media like that come from investment advisors that have their own financial reasons for hyping a particular investment, reasons that probably have nothing to do with your own financial success.

Be wary. Put in the time to research investment by doing things like reading the prospectus or don’t bother investing in it at all.

Mistake No. 16: Working with the wrong advisor

Just as there is in any profession, there are good financial advisors and bad financial advisors out there. There are a few tell-tale signs of bad advisors, however.

One sure sign of a questionable advisor is that they’re not asking you a lot of questions – a good advisor wants to know who you are and what your reasons for investing are. Another sign is that they can’t explain why you would want to invest in a particular investment.

In general, I look for fee-based financial advisors, meaning that they don’t make their money from commissions on particular investments (because doing so would give them the incentive to push you into those investments whether they’re right for you or not).

Mistake No. 17: Letting emotions get in the way

The worst investment decision is one based on emotions, and those emotions can come from a lot of places. They can come from fear about the future. They can come from anger or sadness regarding your key life relationships. They can come from irrational exuberance about how well things are going at the moment.

The best investment plan is one that’s considered with minimal emotion and one that you stick to throughout those emotional highs and lows.

Mistake No. 18: Forgetting about inflation

Inflation is a real thing. Prices continue to go up and up and up and if you don’t account for that down the road, you’re going to find yourself in a real pickle eventually.

Don’t make your target number match what you would need today. Include inflation in the equation. Assume that prices are going to go up (at least) 3% per year and thus you’re going to need that much more to live on in retirement. Yes, it makes the hill a lot bigger, but you’re better off shooting for the right number.

Mistake No. 19: Neglecting to start or continue

Many people avoid retirement savings because of a fear of complexity or a desire to maximize their paychecks today. Some people choose to discontinue their retirement savings because they feel pressured by today’s financial needs. The worst mistake you can make when saving for retirement is not starting at all; the second-worst mistake is stopping your savings and not restarting them.

Mistake No. 20: Not controlling what you can

You can’t personally change the ups and downs of the economy, but you can change your own day-to-day behavior. You can choose to spend less on unnecessary things, which gives you more money to invest in the future.

The key is finding a good balance, and many people believe in a balance that is tilted too hard toward the present and away from their future needs.

Five Key Steps to Address Most of These Concerns

So, how do you address these mistakes? What kind of plan exists that takes these widely varying mistakes into account? Here are five key steps you can take to address almost all of these issues.

1. Learn how to invest.

Knowledge is power. The most important thing you can do is learn, learn, learn and never stop learning.

Investing actually isn’t that complicated as long as you’re willing to spend the time to learn about it. I recommend picking up a really strong book on investing – my usual recommendation is The Bogleheads’ Guide to Investing by Larimore, LeBoeuf, and Lindauer – and read through it slowly.

At any point where you don’t understand a particular point, stop and go research that specific point until you do understand it. Any time a term comes up that you don’t quite get, stop and look up that term so that you do understand what’s being said. Look at lots of real-world examples of what they’re talking about. Then, repeat this with another investment book or two. Before long, it won’t seem scary – instead, it’ll seem easy.

2. Manage the investments yourself.

Once you have that knowledge, managing your own investments seems like an obvious move. Why would you not manage your own investments if you understand investing?

Taking control of things yourself means that you don’t have to pay an investment advisor as a middleman between you and your investments and you also have the ability to freely choose whatever investments work best for you. Almost every investment firm offers more than enough online tools to handle the personal management of investments.

3. Stick to a simple strategy.

The simpler, the better. Stick your retirement savings in a target-date retirement fund. If you’re saving for other goals, come up with a very simple portfolio spread across two or three different asset classes – domestic stocks, international stocks, bonds, cash, real estate, etc. – and just sit on that.

Set up an automatic investment plan and then just forget about the whole thing. Check it every once in a while and adjust your automatic investments accordingly so that you keep your portfolio in balance.

4. Ride out the ups and downs.

Stocks are going to go up and down. Bonds are going to go up and down. Real estate is going to go up and down. Don’t sweat it.

Never, ever forget that you are in this for the long haul and that making a panicked move based on a short-term drop or a short-term jump is probably going to put you in a worse long-term position, especially when you add in transaction fees and taxes (if applicable).

5. Call in a fee-based financial advisor only when you’re facing an exceptional challenge.

At some point, something will probably come up that is actually fairly complicated and you’re not sure how to proceed.

This doesn’t mean it’s time to panic or to undo everything. This means it’s time to call in a fee-based financial advisor, one who won’t spend their time trying to sell you on some investment option that isn’t in your best interests.

A good financial advisor will simply ask you a lot of questions, figure out where you’re going, and help you tweak things so that you stay on the path you want to be on. That’s what a good financial advisor does.

Final Thoughts

If you follow those steps, you’ll dodge most of these common investment mistakes just as a matter of course. These mistakes simply don’t apply to people who learn about investing, chart a simple course, and stick to it through the short-term rises and falls.

The core to all of this, however, is learning about investing. Don’t trust everything to a financial advisor. Take the time to learn about investments on your own, even if you’re just depositing money in your 401(k). d to much better returns over the long haul.

Good luck!

Source:http://www.thesimpledollar.com/20-common-investment-mistakes-and-five-simple-steps-to-avoid-them/

15 Amusing Retirement Quotes

Retirement

1. Retirement is having nothing to do and someone always keeping you from it. -Robert Brault 

2. When you retire, you switch bosses — from the one who hired you to the one who married you. -Gene Perret

3. Retirement kills more people than hard work ever did. -Malcolm Forbes 

4. The trouble with retirement is that you never get a day off.  -Abe Lemons


5. Retirement, a time to enjoy all the things you never had time to do when you worked.-Catherine Pulsifer 

 6. The key to retirement is to find joy in the little things. - Susan Miller 

7. If we wait until retirement to enjoy ourselves, there may not be enough of ourselves to enjoy it.— Mike Hammar

 8. Retirement is wonderful. It's doing nothing without worrying about getting caught at it. - Gene Perret

9. Retirement has been a discovery of beauty for me. I never had the time before to notice the beauty of my grandkids, my wife, the tree outside my very own front door. And, the beauty of time itself. — Hartman Jule 

10. Cash - in savings accounts, short-term CDs, or money market deposits - is great for an emergency fund. But to fulfill a long-term investment goal like funding your retirement, consider buying stocks. The more distant your financial target, the longer inflation will gnaw at the purchasing power of your money.-Suze Orman 

11. To enjoy a long, comfortable retirement, save more today. -Suze Orman 

12. Retirement is the ugliest word in the language.- Ernest Hemingway 

13. In retirement, I look for days off from my days off.- Mason Cooley 

14. Retire from work, but not from life. - M.K. Soni 

15. Retirement is like a long vacation in Las Vegas. The goal is to enjoy it to the fullest, but not so fully that you run out of money. – Jonathan Clements

16 Savings Quotes - The Secrets of Wealth Building

1. All days are not the same. Save for a rainy day. When you don't work, savings will work for you. - M.K. Soni

 2. A penny saved is a penny earned. - Benjamin Franklin 

3. Save a part of your income and begin now, for the man with a surplus controls circumstances, and the man without a surplus is controlled by circumstances. - Henry Buckley 

4. Wealth can only be accumulated by the earnings of industry and the savings of frugality. - John Tyler 

5. A penny here, and a dollar there, placed at interest, goes on accumulating, and in this way, the desired result is attained. It requires some training, perhaps, to accomplish this economy, but when once used to it, you will find there is more satisfaction in rational saving than in irrational spending. - P. T. Barnum

 6. A simple fact that is hard to learn is that the time to save money is when you have some. - Joe Moore 

7. No one is rich whose expenditures exceed his means, and no one is poor whose incomings exceed his outgoings. - Thomas Chandler Haliburton 

8. Resolve not to be poor: whatever you have, spend less. Poverty is a great enemy to human happiness; it certainly destroys liberty, and it makes some virtues impracticable, and others extremely difficult. - Samuel Johnson 

9. It is never too early to encourage long-term savings. - Ron Lewis 

10. The habit of saving is itself an education; it fosters every virtue, teaches self-denial, cultivates the sense of order, trains to forethought, and so broadens the mind.- T.T. Munger 

11. Savings represent much more than mere money value. They are the proof that the saver is worth something in himself. Any fool can waste; any fool can muddle, but it takes something more of a man to save, and the more he saves the more of a man he makes of himself. Waste and extravagance unsettle a man's mind for every crisis; thrift, which means some form of self-restraint, steadies it.- Rudyard Kipling 

12. A man who both spends and saves money is the happiest man because he has both enjoyments.- Samuel Johnson 

13. Spend what is left after saving. — Warren Buffett 

 14. By definition, saving — for anything — requires us to not get things now so we can get bigger ones later. — Jean Chatzsky 

 15. Don't spend your life working for money; save money and hire it to work for you.-Dr. John F Demartini 

16. The reason saving comes before investing is that you need to have seed before you can sow it in anticipation of a harvest. -Rajen Devadason

How To Become A Millionaire

A private jet, a mansion overlooking the ocean, and a private island on the Caribbean; if there is one goal in life that is oblivious to the distinctions of race, religion, and geographical location, it’s to be abundantly wealthy

.

However, achieving millionaire status is as good as praying for money to rain down from the sky if one does not forge a determination to shed old habits and mindsets, and the discipline 7 to do something about it.

For those who want to realize their dream of becoming a millionaire, it is not entirely far-fetched. Here are the do’s and don’ts that may help you in your journey to becoming a millionaire.

Do: Have the courage to work for yourself

While not completely impossible, most people can attest to the fact that the journey to becoming a millionaire is exponentially longer when working for someone else.

Being able to climb the corporate ladder and finding a company that can afford to pay you a high salary aside, working for someone else means you’re trading your time and skills for money; and since your time is limited, your ability to earn is also limited.

Don’t: Be impatient

The road to being a millionaire is paved with knowledge, experience, and knowing the right people; all of which can only be attained from years of working under someone (or a group of people) who already possesses them.

Do: Believe in becoming a millionaire

Based on the law of attraction, the first step to become a millionaire is to start acting like one. Becoming a millionaire is as much the way you think as it is the actions you take. Everybody wants to be a millionaire but not everybody believes that they can be or that they deserve to be, and it is this lack of belief that causes wealth to elude them.

Warren Buffet, widely considered the most successful investor of the 20th century says “I always knew I was going to be rich. I don’t think I ever doubted it for a minute”.

Don’t: Let your mindset weigh you down

As mentioned above, many do not believe they deserve to be a millionaire, in fact, much associate wealth with corruption, evil, and ignobility.

To be on track to be a millionaire, you should purge this mindset, stop undervaluing yourself, and know that you deserve the rewards of your hard work.

Do: Be tenacious and open to learning

Nobody ever said that becoming rich is easy – in fact, your journey to wealth is almost definitely going to be riddled with people who will get in your way, frustration, and even failure.

Hold firm to your beliefs, get up after every failure, and most importantly, learn from your failures and the failures of other millionaires.

A good example of a tenacious wealthy man is Donald Trump who despite having filed for bankruptcy numerous times and having racked up a personal debt of over US$900 million in 1991, is worth US$3.5 billion as of September 2013.

Don’t: Be a self-absorbed snob

The biggest obstacle to learning is thinking that you already know everything there is to know. When you are unable to learn, you are unable to manage your wealth as it grows; every decision you make that concerns your finances must be built on a solid foundation of knowledge.

Quoting Warren Buffet once more, “It’s better to hang out with people better than you. Pick out associates whose behavior is better than yours and you’ll drift in that direction”.

Do: Live beneath your means and enjoy the least expensive things in life

Part of becoming a millionaire is to be thrifty; because money spent on lavish and expensive things is money not going towards building your wealth. Identify the things you enjoy doing now and continue to do those things, because if you can afford them when you’re not a millionaire, you can definitely afford them being one.

Don’t: Get caught in lifestyle inflation

Lifestyle inflation occurs when you raise your standard of living following an increase in income or wealth, which ultimately results in the status quo (i.e. you’re no better off with more money than you were without) or worse.

A few pointers to manage lifestyle inflation includes:

• Don’t immediately spend more when you earn.
• Don’t collect things that require a substantial and continuous injection of funds.
• Get a car of an ordinary brand that suits your needs.
• Stop equating spending with happiness.

Personal Finance Tips from Billionaires

Many people instinctively roll their eyes at the thought of getting personal finance tips from rich people. After all, advice like "Buy topaz dog collars instead of diamond ones" doesn't exactly resonate with someone who has to stretch every paycheck to make ends meet. But there are some solid tips from very wealthy people that make sense regardless of your financial situation. Here are some personal finance tips from billionaires that can apply to just about everyone.

Start Early

Carlos Slim Helú is a Mexican businessman who was ranked as the richest person in the world for a few years (Bill Gates regained the title recently.). Slim's personal finance tips reflect commonly held wisdom among wealth-building experts, including this very basic tip: start early. If you're 45 and struggling, this may seem irrelevant, but in your case, the advice should be changed slightly to "start now." The sooner you start managing, saving, and investing your money, however, limited, the better off you'll be as long as you avoid mistakes like throwing all your investment money into one stock. Slim lived this advice, buying shares in a Mexican bank at age 12, and earning 200 pesos a week as a teen working for his father's company.

Find Your Passion

Your bank account may be empty, but believing in yourself at the most fundamental level costs nothing. As billionaire Oprah Winfrey said, "You become what you believe. You are where you are today in your life based on everything you have believed." Change is possible whatever your situation and the first step is believing in yourself.

Closely related is finding out what your passion in life is, whether it's sewing, animal rescue, or writing software.

Christopher Paul Gardner is "only" a millionaire, but he was a homeless single father for a time. Carmine Gallo had the opportunity to ask Gardner his secret to success, and Gardner said, "Carmine, here's the secret to success: find something you love to do so much, you can't wait for the sun to rise to do it all over again." Maybe you can't start that design business, but you can go online or go to your library and start learning about it, and the sooner you do so, the better.

You Don't Have to Game the System

Billionaire Warren Buffett lives in Omaha, and he made his investment fortune on the fundamentals: focusing on companies with strong annual cash flow, and choosing companies that aren't at risk of technical obsolescence. Buffett spent the early part of his career investing in insurance companies. It's not sexy, but it obviously worked. Whether you have $50 to invest in or $5,000, sticking with the fundamentals is smart.

Simplify Your Life

This personal finance tip is similar to the previous one. Warren Buffett lives in a house he bought in 1957 for $31,500. Carlos Slim has lived in the same house for more than 40 years. Constantly pursuing things you don't need puts you on a financial treadmill, not an upward escalator.

Walking and Taking Public Transport Is Nothing to Be Ashamed Of

John Caudwell, David Cheriton, and Chuck Feeney are billionaires you probably haven't heard of, but all three walk, ride bikes or use public transport for everyday getting around. It's easy on the bank account, and better for the environment. If these guys aren't ashamed of taking the bus, you shouldn't be either. Haters are gonna hate. Ignore them.

Cars Are Consumer Goods

Ingvar Kamprad of Ikea drives a 10-year-old Volvo, and Walmart billionaire Jim Walton drives a 15-year-old pickup truck. Don't waste time on the idea that a car is a status symbol. Sure, if you're a car aficionado, there's nothing wrong with restoring or buying that sweet ride you've dreamed about, if you can afford to. But for most people, including rich people, getting from Point A to Point B in safety and reasonable comfort is sufficient. Some personal finance tips are about distinguishing needs from wants.

When you experience financial difficulties, it can be a little much to take listening to advice from billionaires. But some very wealthy people started from very humble backgrounds. Whatever your financial situation, you can improve it, and personal finance tips offered by the very wealthy can make sense in just about any situation. Buy low, sell high, and don't waste money. Find your passion and make time for it, even if you're working at a wage-slave job. These aren't just tips for financial success, but for making the most of your life, and isn't that what money is supposed to help you do?

Source: https://www.mint.com/personal-finance-4/personal-finance-tips-from-billionaires

15 Debt Quotes to Watch Out

Debt

1. What can be added to the happiness of a man who is in health, out of debt, and has a clear conscience? -Adam Smith 

2. Rather go to bed supperless, than rise in debt. -Benjamin Franklin 

3. A man in debt is so far a slave. -Ralph Waldo Emerson 

4. Live within your means, never be in debt, and by husbanding your money you can always lay it out well. -Andrew Jackson 

5. Debt is the worst poverty. -Thomas Fuller 

6. You cannot spend your way out of recession or borrow your way out of debt. -Daniel Hannan 

7. Debt is dumb. Cash is king. -Dave Ramsey 

8. Debt is like any other trap, easy enough to get into, but hard enough to get out of. -Henry Wheeler Shaw 

9. Homelife ceases to be free and beautiful as soon as it is founded on borrowing and debt. -Henrik Ibsen 

10. One can pay back the loan of gold, but one lies forever in debt to those who are kind. -Malcolm Forbes 

11. What can be added to the happiness of a man who is in health, out of debt, and has a clear conscience? -Adam Smith 

12. A promise made is a debt unpaid. -Robert W. Service 

13. Debt is beautiful only after it is repaid. -Russian Proverb 

14. Credit is a system whereby a person who can not pay gets another person who can not pay to guarantee that he can pay. -Charles Dickens 

15. Some debts are fun when you are acquiring them, but none are fun when you set about retiring them. - Ogden Nash

12 Things Financially Successful People Do Differently

What would financial success look like for you? Certainly, everyone has a different definition. For me, it's not about having more money than I know what to do with. It's about making wise decisions with the money that I have.

It's not all about pinching pennies, although, there is a place for managing expenses and keeping them to a minimum. It definitely involves entrepreneurship and generating multiple streams of income. Not so that I can be rich, but that I can give more, provide for my loved ones, and create more freedom and time to do the things that interest me the most.

If that definition of financial success relates to you, consider these 12 things you can bet financially successful people are doing differently than the average Joe.

1. Have an eye for entrepreneurship. Financially successful people don't just think about how to manage expenses are cut them back when times are tough. They think about ways to increase their income. They are constantly on the lookout for new ideas that will allow them to leverage their skills and abilities to generate additional income.

For them, there are two parts to a budget. Expenses and income.

People often just focus on spending and expenses when there is a world of opportunity out there to increase the income side to not only meet expenses but support their long-term goals and plans. You don't have to think big in this area or come up with the next product on "Shark Tank."

Instead, think about ways you could generate an extra $500 a month. How about $1,000? You get the idea.

2. Assemble a team of experts. I constantly hear about how successful people surround themselves with the right people to support them in what they are doing. Personal finance is no different. Who said it had to all be personal, anyway?

Successful people have identified where they are experts and where they aren't. Most people will find that at some point in their lifetime they need a good family or business lawyer, accountant, financial counselor (short-term decisions, budgeting, debt management, etc.), and financial adviser (long-term decisions, retirement planning, etc.) to help them along the way.

Seek out these people now so you don't have to hunt for them later. Aside from the lawyer, the other three subject matter experts are people you'll want to meet several times a year.

3. Minimize taxes. Financially successful people look to minimize their tax burden in order for them to get the most out of their money and investments.

How do they do this? As I mentioned above, they have a certified public accountant on their team so they don't miss applicable deductions when it's time to file their taxes.

They also invest pre-tax dollars in tools such as a company 401(k) up to the employer match. They also invest after-tax dollars in a Roth IRA to avoid paying taxes on their earnings in the future.

It's always better to pay taxes on today's dollar versus tomorrow's! At the end of the day, taxes are every American's responsibility, but there is nothing wrong with taking advantage of tax benefits to the degree the law allows.

4. Never stop educating themselves. Walk into the house of the financially successful and you'll perhaps find the latest issue of Money magazine, Entrepreneur, and some financial staples, such as Dave Ramsey's "Total Money Makeover," anchoring down their book library.

That's not to say that they spend all their time reading, rather they stay informed on the latest tips and ideas and seek to be inspired by others in the financial and business industries.

Even the most financially successful know that there is plenty to be learned from others and life's journey always demands new strategies and ideas.

5. Build Wealth. Building wealth is a top priority in their plans and it's done with steady plodding over time, not overnight. The financially successful seek to maximize retirement investments via their 401(k)'s (up to employer matching) and Roth IRA's but go further in creating assets that appreciate in value.

Such assets come in the form of businesses or real estate that can eventually be sold or can generate a monthly income to support them later in life or even replace the need of working for another employer in a full-time capacity. Time is extremely valuable and the investment in assets, which may require work upfront, creates free time once it grows in value, and produces passive income.

6. Don't deprive themselves. While making wise business and financial decisions is core to their nature, they don't deprive themselves of having fun. Doing so would only create more of a tendency to spend money later in life. That's why they make the most of the journey, budgeting for family vacations, date nights, and time with their family.

While these seem like expenses on the surface, they can also be viewed as investments targeted toward their most valued relationships. They also know that it's important to celebrate accomplishments along the way so they can be recharged to accomplish their next business or financial goals.

7. Set goals. And speaking of goals, the financially successful have them. Who needs goals? You do if you have dreams and aspirations you want to accomplish in life. Interested in replacing your day job with a small business or generate passive income while you sleep?

Doing so requires a plan and setting SMART goals (specific, measurable, achievable, realistic, and time-bound) to keep you moving. Otherwise, you'll squander time and just tell yourself you'll get to it tomorrow.

Setting SMART goals works for their personal finance goals too. Such financial goals help with saving more money and managing spending from month to month.

8. Reinvent themselves. The financially successful know that things change with time and you can't always stick to yesterday's goals and plans. New opportunities arise all the time whether it be in business or in the tools used to manage their finances.

The last few years have seen a big movement in Cloud technology and how people can now manage their finances online with applications such as Mint, Ready for Zero, Betterment, Credit Karma (for credit scores), and many more.

There is information at our fingertips and the ability to access it anywhere, anytime. From a business standpoint, social media is here today, but what will it look like tomorrow, and what business opportunities will the financially successful capitalize on in the future?

9. Help others. Financial success isn't always about looking in the mirror. It's about knowing what's within and the most successful know that acquiring money can't be the top priority in life. Putting money first tears apart relationships and the race to acquire more can never be won.

The financially successful keep money in its proper place by giving it away. Yes, they make giving their top priority. They give to their house of worship or favorite charity, as well as look to help others.

10. Avoid personal debt. Debt is the number one thing that robs people of time and freedom. Why? It requires time to work to generate income and make payments. Sometimes that requires overtime work!

Brearin Land, financial adviser and CEO of Irvine Wealth Management adds, "Being weighed down by debt puts a damper on a family's ability to meet their retirement goals down the road. Don't pass the buck to yourself. Staying out of debt allows you to buy life's most important asset when you need it most -- time."

Without debt, you have a lot more flexibility and most importantly, get back the time to invest in wealth building activities such as starting a business or in creating products and services to sell. The financially successful know that personal debt is a hindrance and they do everything they can to avoid it.

11. You Down with OPM. While personal debt might be a hindrance, the right kind of debt could give your business the edge it needs. Jude Wilson, financial strategist and founder of Wilson Group Financial, says:

"Many financially successful clients I work with view the use of debt very strategically. Their focus is, "how can I use "other people's money" to enhance my business opportunities. This is in stark contrast to the way many see debt, as a way to satisfy more immediate desires, like that next grand vacation or a means to purchasing that dream mac-mansion."

Financially successful people see debt as a tool to purchase or own a greater percentage of an investment -- that if successful, could result in earning far more than the interest on the loan. Of course, there are those of us who use debt irresponsibly and others who view debt as something to be avoided at all costs, but the financially savvy relish the chance to leverage debt to maximize returns.

12. They have persistence. Finally, you will never be successful unless you have persistence. This characteristic is never been more important when striving to attain financial goals, overcome obstacles, and certainly, in growing a business into the black.

The financial success is persistent and doesn't give up when the little voice inside says to do so, or when naysayers try to hold them back. Persistence pays off debt, increases retirement savings one percent at a time, and continues to create and market products when you don't think anyone is listening.

There you have it. 12 things of financially successful people do differently. They sound simple on the surface, but how many people in your life do you consider to be financially successful?

Not everyone has the discipline and persistence required. Think about the people in your life you'd like to model after and consider how they live out these 12 things.

Invite them to coffee or dinner and talk about their success, these 11 characteristics, and perhaps learn more things you can add to the list.