Being a celebrity obviously has its perks, and chief among them is the income that allows for lavish lifestyles. But celebrities are not immune to bad financial decisions. Poor investments, shady investment managers, and just plain ol’ bad advice has led to many star-studded money failures. Here are just a few (spoiler alert: They all bounced back, which doesn’t always happen!)
Around 2010, pop star Rihanna and singer of “Diamonds,” was literally living the diamond life, encouraged by her then manager. Lavish spending led to near bankruptcy before she caught on to the true state of her finances. She sued her manager, recouped a $10 million settlement, and went on to continue her wildly successful professional career. Currently, Rihanna is worth about $250 million. Lesson: No matter who is managing your money, take a look at the books regularly!
At 20 years old, actress and comedian Melissa McCarthy landed in New York City, determined to become a star. The problem? She had no money, so she turned to credit cards to survive. With friends who told her that she had to dress the part if she wanted to get the roles, McCarthy racked up a significant amount of debt with a Bergdorf Goodman credit card, even though she “couldn’t withdraw $5 from her bank account.” Luckily, she landed a “day job” as a production assistant, continued trying out for roles, and eventually hit it big at the box office. Today, she’s worth approximately $60 million. Lesson: Credit cards aren’t the same as having money, so don’t borrow what you can’t pay back.
Hand in hand with spending too much of the money that you actually do have or racking up credit card debt because you don’t have any money at all, is the mistake of over-estimating future earnings. Here are a few generic examples of over-extending in real estate (though you don’t have to be a star to make these errors in income judgement) with a limited chance of getting a healthy return on the investments.
1. Putting too much money into a house.
In other words, stars often put way more money into their homes than they will likely ever get back out of them. And that’s because high-end luxury homes are a very specific and very small market. We’ve all seen images on the internet of celebrity homes with elevators, giant screening rooms, indoor swimming pools, 20-car garages, and even bowling alleys! Who can afford to buy these homes if the lucrative movie contracts run out? A very small percentage of buyers, that’s who! For average-income people who aren’t making seven- or even eight-figure incomes, getting too crazy with remodels by adding specialty features will exclude a large portion of potential buyers down the road.
2. Buying too many homes.
When celebrities start buying properties all over the world, chances are they’re spending very little time at most of them. In this situation, it probably makes more sense to rent once or twice a year. This also applies for us regular people, who might be considering a second or vacation home. If you love to ski, but only get up to the mountains once or twice a year, buying a cabin or even a condo might not be smart. Look into time-shares or just renting.
While common-sense guidelines should apply to people at all income levels, it’s often celebrities who get way too spendy, too soon in their career, take their eye off the books, or get too specialized in one sector, like real estate. Keeping these tips handy no matter how big your paycheck is will help you stay out of the financial danger zone in in the peace of mind zone..