Submitted by Rachel R on Wed, 04/20/2016 - 10:04am
Why do celebrities lose it all? Seven reasons help explain it
Image Source: Flickr User solexlife
America is a culture largely obsessed with celebrities, whether with their rise or their downfall. One thing is for certain – if a celeb goes financially bust, it will make headlines. While it’s the bankruptcy itself that makes the evening news, the reasons behind the mess are usually not well publicized. Here’s a look at seven of the most common reasons celebrities go broke and what you can learn from it.
#1 Rags to Riches Exuberance
For celebrities who grow up with money – like Gwyneth Paltrow – having a lot of money is not a major life change, so they may handle it better. But for those who go from waiting tables and couch surfing to big fame, the transition can be a shock. People going from nothing to everything may overdo it by rewarding themselves because they want to make up for all the hardship they suffered before they made it big.
Real world application: If you’ve been living lean while in college or in lower-paying jobs, then finally get a big raise or a new job that pays a lot more, you may overspend treating yourself or loved ones.
Celebrities who married before they became rich and famous usually don’t have a prenuptial agreement, and they can lose half of everything they’ve amassed if they split with their spouse. Even those who wed with a prenup can lose a pile of money in alimony and child support if the split comes at the height of their fame. Combine that with career trouble or other factors on this list, and it can be a recipe for financial disaster.
Real world application: Divorce can be financially catastrophic no matter your income tax bracket. Expenses increase with a split, and managing two households can tank the finances of both exes.
#3 Bad Investments
You often read about celebrities investing in liquor brands, starting up their own record labels or production companies, or launching a restaurant. Celebs may count on their personal brand to help the business succeed even if it’s in a risky market. Others put their money in the hands of money managers who may not have their best interests in mind. Any hiccup can create a money mess.
Real world application: It's important to carefully select retirement investments and saving for emergencies, but overspending or servicing debt may take priority and prevent you from building a nest egg.
#4 Poor Money Management Skills
Money management skills are not something we're born with. If a celebrity grew up in a household that struggled financially – as many do – they may not have learned any practical financial skills. Then when the money starts rolling in, they don’t pause to educate themselves on money matters. They may let others write their checks or pay their bills, and they don’t keep track of their finances.
Real world application: Partners who don’t communicate with each other about what they're spending can cause trouble. If one or both have poor money management skills, the problems can quickly become unmanageable.
#5 15 Minutes Runs Out
For many, fame is not a long-term state of being, but some celebrities spend like they’ll always have cash pouring in. If the money train rolls to a stop, this can cause problems because their debt is tied to a higher income level and they can no longer afford to service their obligations or keep up with maintaining their assets. It can be a downhill slide from there.
Real world application: You may set your spending at a level that’s maxed out based on your highest earning potential. But if you lose your job or the economy stutters, this can result in financial disaster.
#6 Squad Problems
You often see celebrities with an entourage, and that lifestyle is costly to maintain. When someone finds fame, it's tempting to help their friends and family out by hiring them as staff, footing the bill for all sorts of extravagances, and handing out cars and homes because it feels like the fair thing to do. Some hangers-on may make more and more requests until the well runs dry.
Real world application: Even if you don’t have an entourage, if you earn more than friends, you might pick up the check more often, loan out money, and be financially supporting the friendship unfairly.
#7 Living Beyond Your Means
Celebrities seem to make headlines for buying fancy rides, acquiring mansions, and spending extravagantly. They may feel this is necessary to keep up their reputation of success. But often, they are taking on debt to live this lifestyle, and everything is financed with interest attached. This can be the road to financial ruin.
Real world application: Everyone can get into this same mess by buying based on wants rather than a budget. Debt-living is a bad habit, and purchasing homes or cars out of your price range is dangerous.
Bankruptcy as a Solution
Bankruptcy can be an effective way for anyone – famous or not – to get a financial reset if their debt becomes unmanageable. Even if you’re earning a lot of money, bankruptcy can help if your debt far outweighs your ability to pay.
To find out more about North Carolina bankruptcy as a debt relief solution, contact the Law Offices of John T. Orcutt today. Don’t deal with the stress of living paycheck to paycheck. Call +1-919-646-2654 now for a free consultation at one of our convenient locations in Raleigh, Durham, Fayetteville, Wilson, Greensboro, Garner or Wilmington. Get the peace of mind you deserve.
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