Lessons From Celebrity Money Mistakes

It’s easy to assume that celebrities, with their exorbitant bank accounts and flamboyant lifestyles, are also good at managing money. That is not the case as several examples in this article point out 

Despite numerous inspiring rags-to-riches stories of celebrities, we must not forget that the opposite also transpires. Many big shot celebrities have had their careers arc from riches to rags. Typically, wealth and fame go hand in hand, but more often than not swathes of celebrities wind up with financial distress. It is never easy to make a fortune in real or reel life. It takes a dollop of hard work, sweat and blood to make it big as a public figure in society. Even after having made it big, it is equally difficult to sustain success for a long tenure. 

It’s easy to assume that celebrities, with their exorbitant bank accounts and flamboyant lifestyles, are also good at managing money. Just because one may be good at making money doesn’t mean that the individual also knows how to budget, save, invest and grow that money wisely. History stands proof to the fact that the rich and famous are not immune to making major money mistakes. The financial failures of some celebrities evince what can go wrong when you mismanage your hardearned money. The silver lining is that these blunders serve as valuable pointers for us. Here are a few lessons from celebrity money mistakes. 

Avoid Bad Debt, Live Within Means

Just because you have a great deal of money doesn’t mean you should spend more than you can afford. Michael Jackson, the ‘King of Pop’ who created the world’s best-selling albums died broke with supposedly USD 400 million in debt. Mike Tyson, who is considered to be one of the greatest heavyweight boxers of all time, is estimated to have earned more than USD 400 million during his boxing career. He was known for his spendthrift lifestyle, splurging big money on parties, mansions, sports cars, jewellery and exotic pets such as Siberian tigers. Upon declaring bankruptcy in 2003, Tyson listed debts in excess of USD 27 million, of which nearly USD 18 million came from unpaid taxes. 

Other debts included divorce settlement, unpaid legal fees and child support. Nicholas Cage, one of Hollywood’s biggest stars and among the highest paid actors, is another example. From 1996-2011 he earned USD 150 million. However, in a short span of time most of his fortune dried up due to his lavish spending habits. One of his expensive purchases even includes a 67 million year old dinosaur skull. The Internal Revenue Service (IRS) placed hefty tax liens on multiple properties owned by Cage. The actor failed to pay the tax bills and hence he was forced to liquidate several of his properties as well as treasured personal belongings. 

A common problem among these celebrities is that when their incomes started dwindling they failed to change their carefree spending habits. Learning to live within or below your means helps steer clear of financial ruin and reduces stress. We must understand that borrowing money to pay for exorbitant living expenses and possessions that depreciate in value over time and never generate return epitomize bad debt. It might furnish short-term pleasure but offers negative value in the long run. Always remember to pay your bills and taxes on time and you won’t be charged with hefty late fees which might damage your credit score. 

Save Smarter, Create a Contingency Fund

Amitabh Bachchan, who has towered over all other actors for several decades now, has encountered bankruptcy. The legendary superstar of Indian cinema, synonymous with most of the successful Hindi language films, has found himself broke. To quote an excerpt from the actor’s personal blog: “In the year 2000, when the entire world was celebrating the new century, I was celebrating my disastrous fortune. There were no films, no money and no company.” Amitabh Bachchan Corporation Limited (ABCL), established in 1996 to produce films and manage events, was in a deep financial mess in 1999 and approached the Board of Industrial and Financial Reconstruction (BIFR) to be rated as a sick company. 

Big B was under debt, short of funds and all his properties were mortgaged. Despite being a big name in the industry, he had no movies to back him up. On similar lines, actor Govinda Ahuja’s successful acting career took a backseat. The actor had no movie offers for around 3-4 years and he found himself in debt. What all this points to is the fact that despite knowing the importance of savings, we often tend to lose sight of it. Saving money is vital. It provides financial security and freedom and secures you in a financial emergency. A contingency fund, therefore, acts as a buffer that protects you and your finances in case of unforeseen events. 

Avoid Putting All Eggs in One Basket

Actors often end up investing their hard-earned money in projects that might give them the kind of high returns they expect. Huge risks make room for even bigger setbacks. In 2011, superstar Shah Rukh Khan had invested a whopping `150 crore – a big chunk of his fortune – into making the movie ‘Ra.One.’ Touted to be his dream venture, there are reports which state that he had also signed blank cheques during the production of the film. The film sank without a trace instead of making wonders at the box office, leading to King Khan’s bankruptcy. The actor later admitted that the film was a mistake. 

Ergo, diversification is the key. A common explanation of diversification is the act of ‘not putting all your eggs in one basket’. In simple words, diversification means you have more baskets. If you keep your eggs in multiple baskets, you won’t break all of them. That’s just simple logic. Diversification aims to maximise returns by investing in different areas that would each react differently to the same event. Although diversification does not guarantee against loss, it is the most important component of reaching long-range financial goals while minimising risk. 

Create a Will

What do Michael Jackson, Bob Marley, Abraham Lincoln, Howard Hughes and Dhirajlal Ambani have in common? It is the fact that they all passed away intestate i.e. they died without having a will. Having a will allows a person to decide what to do with his assets, holdings, and other belongings after his demise. A will is a legal document that informs beneficiaries about the necessary wealth at hand, how it is to be distributed, to whom, and in what manner. The concept of creating a will has been overlooked by most celebrities in the past. Death is inevitable for everyone and having a will can reduce a lot of legal hassles. 

Investigate Before Investing

Celebrities often seem to fall victim to various forms of fraud. In recent years, famous actors, athletes and entertainers have become victims of illegal scams. Cindy Crawford, Ben Stiller, Uma Thurman, Gordon Sumner (popularly known as Sting), Elton John, Robert De Niro, Kevin Bacon, Shah Rukh Khan, Saif Ali Khan, Rahul Dravid and numerous other celebrities have all been scammed for large sums of money. Over the years, scammers have gotten intricately sophisticated with their attempts to dupe an individual of his or her personal details and money. Precaution is better than cure. You should be alert and exercise caution at all times to protect yourself from fraudsters and scammers. Thorough research and scrutiny must be conducted before investing your funds. 

Conclusion

Not many people know this but Isaac Newton, one of the greatest mathematicians and physicists of all time who discovered the laws of gravity, heavily lost his wealth in stock markets in 1720. Two centuries later, Albert Einstein, one of the most influential physicists, invested a major chunk of his Nobel Prize money in the stock market. He ended up losing most of it when the market crashed in 1929 during the Great Depression phase. Newton and Einstein were both considered extraordinary scientists and geniuses of their time with high IQ. However, they failed when it came to investing and growing their money. 

Despite huge success, one should focus on living within the means, spend wisely, pay taxes, avoid bad debt, know their finances, save regularly, acquire appreciating assets and build a well-diversified investment portfolio. Einstein once described compound interest as the ‘eighth wonder of the world,’ saying, “He who understands it, earns it; he who doesn’t, pays for it.” Make wise investments and allow them to compound for long periods of time. Don’t fall prey to quick money schemes. Keep in mind that fame and fortune don’t guarantee financial security. Celebrities galore have learned some money lessons the hard way, whether it was due to high debt, tax issues, lavish spending habits, bad investments or just greed. Don’t repeat their mistakes!