Easy come easy go: when it comes to preserving wealth, celebrities are often the worst at keeping money that they have earned.
I recently had a talk with Nick Cannon: rapper turned actor and TV Host. We started a conversation about why most celebrities run into big money issues. There seems to be a common thread among all who make it big and then end up with way less than what they thought.
Nick mentioned his recent issues with Mariah Carey have taught him a lot about money. But Nick isn’t the only student of this school of hard knocks it seems like these days we hear many other celebrities are getting themselves into a funky situation when it comes to money.
Here are some tips on how to stay out of trouble. Below are the most common sources of celebrity financial mishaps:
Temptation: Being a celebrity often puts you in a place of social pressure. Suddenly you are in an arena where everyone expects you to be “the boss” when it comes to clothes, jewelry, private jets, and big homes. This pressure is what causes many celebrities to spend way more than they should.
Think about Nicolas Cage who at one time used to own 14 homes along with 9 Rolls Royces and 1 Ferrari. Do you really need that many cars? How many homes can you live in within a year? The most common mistake celebrities make is what I call frivolous spending. This spending is usually a form of preserving social status while it depletes wealth, quickly!
Most “status” based purchases are highly depreciating assets, think of cars, jets, clothes! These things decline in value by the minute and go out of style rapidly. Think about it, if you have a 3 year old jet you are old news! It is important to make status elevating purchases which actually increase in value, like art! This is where having a good financial advisor can make the difference between going broke or getting even more wealthy.
Income Interruptions: Sudden wealth makes your problems go away, but just for a while. Many celebrities assume that their high income is endless, so they spend. Unfortunately placing themselves in a high expense lifestyle that can be detrimental if the river of income slows down.
This was very evident in the ’90s. Because of the great economic cycle and breakthroughs in movie media, many actors could never imagine slowdowns in their budgets. However, due to the recession in the 2000s and reduction in entertainment demand, many celebrities had their homes, and cars foreclosed on. Some went into bankruptcy. This is even more important when it comes to sports athletes.
Athletes have what we call an earnings “shelf life” which means at some point they are replaced by the next young athlete. This makes it even more important for athletes to save as much as possible, knowing that someday their income will slow down.
Tax Trouble: Wesley Snipes served three years in prison for failing to pay his $17,000,000 tax obligation. The list goes on; Willie Nelson, Marc Anthony, Annie Lelbovitz, Darryl Strawberry oh and did I mention Nicolas Cage who owed over $6,000,000 in back taxes?
When you make big income you pay big taxes, if you live in California about 50% of your income is due in taxes, and let me tell you, Uncle Sam doesn’t care how popular you are. The reason why most celebrities get bit by the tax monster is that taxes are due at the end of the year, while most celebrities spend the money at the beginning of the year.
Catch my drift? It is important to remember about half of what you make is not even yours, so as a rule of thumb keep about 75% of your income socked away for taxes and emergencies.
Moochers: Being popular and having friends come with its fair share of problems. When you have more money than most people, your friends will want to ask for some help. Others may come to you as a funding source for businesses or investment ideas. It is important to know what you are good at and what you may lack skill in.
If you are an actor or an athlete, it’s essential to realize that you are not a business executive, and therefore you should not be the funding source for your friend's businesses. A good idea is to hire a “NO” man. That is the person who you hired that can graciously say “no” to all of your friends who have the next business idea.
A financial advisor can be the “NO” man or sometimes a business manager. So often I meet celebrities who have spent a ton of money on “charity cases” just to keep friendships. It is important to set clear boundaries with friends and family so they can see you as a respectful comrade but not a bank.
Money management is much more than just earning more and more bucks. Financial discipline is a big thing that one needs to adapt to. In order to abide by the steps o
Money management is a lot more than just securing a huge source of income and earning more and more bucks! Contact us today to get a vivid insight of what financial discipline is and the good habits that could fetch celebrities and media persons a stable and secure future.