It can be hard for the average person to believe, but celebrities go broke all the time. We all know that D-list reality stars who aren’t wealthy in the first place lose their money, but it can be surprising when someone more famous ends up bankrupt. We aren’t going to use any names here out of respect for the formerly rich, but we will talk about some of the factors that commonly put stars in the poor house.
Personal Finance Matters for Rich People
The top finance blogs are full of methods that people with any amount of money can turn the tide on a bad personal finance situation. These methods work a lot better the more money you have, but if you don’t use them it doesn’t matter how much money you have. Sooner or later you will run into financial trouble.
That’s the situation that many stars find themselves in. You see it very often with sports stars, who might have gone into the major leagues straight from high school without ever learning about how to manage money. Things go just fine as long as the income firehose is blasting, but when retirement comes, this comes grinding to a halt and many former stars end up in bad financial situations.
All of this pain and embarrassment could easily be avoided. Here are the most common mistakes to be avoided by famous people with money (and people without that much of it).
- Don’t Develop Substance Problems. For every celebrity rehab scandal, there are ten others who are functioning substance abusers. We’re not advocating for 100% sobriety here, but the cost of regular recreational alcohol and drugs is expensive, on body and bank account. The current opioid epidemic is killing people and ruining lives, but it’s also extremely pricey. Prescription pain killers on the black market are very expensive, and once a habit develops, it can be more than a full time job to keep it up. Don’t make the mistake of starting down this slippery slope.
- Not Saving. This one is incredibly simple. It is so easy to spend all of your money and more, but it takes a reversal of instinct to set aside some of what you have for later. Learn to save 10-30% of your income and you will be in a better situation than most people. If all celebrities did this, you wouldn’t hear about celebrity bankruptcy much at all.
- Debt/Not Investing. Debt and investment are two sides of the same coin. With debt, you are losing money all the time at a specific rate of interest. With investment, you are making money most of the time with interest. Going into debt is the easiest thing in the world, and more celebrities than you probably realize have more debt than they have wealth, making their net worth a negative number. This is true for many people who are not famous as well. If you have debt, you should do everything you can to pay it off as fast as possible, because debt grows the longer it sits around. Once you have eliminated it, start saving at the same rate and invest that money. The longer investments sit around, the more they tend to grow.
Celebrities run into financial troubles all the time because they either do not know or do not practice simple financial and lifestyle practices. There are a million ways to go broke, but only a few tried and true methods to build and keep wealth. Practice these and you could find that you do better in the long term than many of the people on TV.