Sometimes we think if we just made more money or won the lottery, all of our financial problems would melt away. But that's not necessarily the case. In reality, a personal financial plan is essential, no matter how much money you bring in. Even high-earning celebrities can face the same challenges as someone with a lesser income when they make poor financial decisions. To examine this further, here are some prime examples of well-known, high-earning public figures that fell into financial difficulty. More importantly, we provide five key takeaways on these financial snafus to help you avoid making similar mistakes.
Famous social rights activist, singer and performer, Aretha Franklin was a prolific musician. With 73 chart-topping songs, Franklin amassed a large fortune throughout her career.1 Unfortunately, Franklin passed away without a will in 2018.2 Franklin’s estate was distributed amongst her children per Michigan law.
Lesson Learned: When an individual passes without a will, their estate can go through several legal and financial hoops. From a financial standpoint, this process can be lengthy & expensive, reducing the overall value of an estate. Without specific instructions, the family of the deceased could disagree on the dispersal of the estate, resulting in more complications. A will provides clarity and planning for the family and ensures the last wishes of the deceased are respected.
Some artists avoid focusing on their money. Famous musician Billy Joel took this approach and did not want to know how much money he had or how much money he was spending. Instead of being informed and involved, he chose to simply trust his manager. As a result, Joel’s manager spent and invested Joel’s money in multiple ways without approval, which ultimately ended with Joel suing his manager for $90 million.3
Lesson Learned: Though money can be a stressful topic for many, understanding your finances is vital to healthy money management. Compiling a list of expenses and clarifying where your money is allocated is a great first step. If you’re looking for extra assistance, investment advice or other financial guidance, a trusted financial advisor can help you.
Overspending puts some of the most wealthy individuals into financial trouble. Many celebrities are known for overspending, but one of the most notorious in recent history is Nicholas Cage. The well-known American actor spent $150 million of his accumulated wealth on a variety of purchases - from multiple castles in Europe to collector cars and even a pet octopus.4
Lesson Learned: Cage’s purchases aren’t necessarily the problem. More specifically, it’s how quickly and how often these large purchases occur. Maintaining a budget and cultivating healthy spending habits should be a key piece of any financial plan. This is one way to not only accumulate wealth, but to maintain it as well.
Home buying is a large investment regardless of how large or small your income is. It’s both stressful and exciting, even more so depending on the price of the home. Still, owning a home is one the most common goals in a financial plan. It can be tempting to overspend on a home, especially when you are pre-approved for mortgage amounts that are larger than you could reasonably pay consistently for a prolonged period of time (a common occurrence). Unfortunately, many individuals fall into financial troubles, and their home is forced into foreclosure as a result. This exact situation happened to actress Kristen Bell, when her $3.1 million home went into foreclosure.5
Lesson Learned: Bell was luckily able to recuperate her losses. Though for many people, a foreclosure has drastic financial consequences, from credit damage to possible bankruptcy. When you purchase a home, make sure you have an emergency fund and a financial plan in place to keep you from stretching your budget too thin.
We all know about the success of Facebook over its predecessor, Myspace. Did you know that Justin Timberlake was involved in the purchase of Myspace with hopes to reestablish the social media platform?6
Lesson Learned: Timberlake ultimately took a $35 million loss on his investment. Needless to say, this turned out to be a poor investment decision for him.7 As any financial professional will tell you, investing always comes with risks. However, some risk can be mitigated with investment strategies. Instead of putting all your eggs in one basket, diversification can be used to help offset risk.
Every name on this list has accumulated a large sum of wealth. Despite that, they are still susceptible to the same financial troubles as anyone else - although often on a grander scale. By examining specific situations, we can see the importance of an effective financial plan, no matter how much your net worth.
A financial advisor will help you identify your financial goals and put an action plan in place to achieve them. Beyond that, an advisor builds protections and strategies into your action plan to help you avoid common financial pitfalls. Don't learn these lessons the hard way. Contact us at Deschutes to learn more about the benefits of working with an advisor.
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