Conservative Investing - Avoiding These Celebrity Financial BlundersSubmitted by Reby Advisors | Certified Financial Planners | Danbury, CT on July 27th, 2014
Celebrities are often placed on pedestals, basking in the glory and praise normal people shower upon them. This is advantageous to them because being in the spotlight can earn them significantly more income than they get from their jobs as actors, athletes or as popular figures. Their popularity increases their market value and enables them to cash in on endorsements and other forms of revenue.
However, dealing with that much money can also pose a problem. They say that high stakes earning means high stakes losing. The speed and ease with which they received their earnings can be dangerous and may be the reason for their financial mistakes.
In the psychology of finances, having a steady inflow of cash affects the manner in which a person spends. When one thinks that there is an endless reservoir of money, a person may spend it at the same rate that they earn it. In the case of the high earning celebrity, this could mean expensive jewelry, numerous luxury cars, a very high class lifestyle, or unintelligent investments.
Common celebrity mistakes include committing exorbitant amounts of money to bad stocks, startup companies that go nowhere, or to a cousin’s friend’s aunt’s business that they shouldn’t have meddled with in the first place. A lot of these financial blunders are obviously the result of a lack of research and knowledge which could have been avoided if these people practiced more conservative investing: focus on going from $10 million to $11 million instead of $10 million to $50 million.
The list of famous celebrity money blunders include:
1. Toni Braxton’s overspending using credit that was actually “advanced payment” for her next records. The money technically isn’t earned yet, as it is still future earnings from future records. Spending “income” this way allows bills to pile up and expects the future to pay for it. The problem arises if that future doesn’t hold up as planned.
2. Deidre Hall lending approximately $800,000 to friends and family and never getting it paid back. Although this was certainly a nice gesture coming from someone with financial stability, it posed a risk of unreturned monies and created the possibility of large negatives on her personal ledger.
3. Tax evasion can also be a huge problem. Not only does it guarantee that you lose wealth in the event that you get caught, but it can also earn you time in jail. Just ask Leona Hemsley.
4. Failure to complete a prenuptial agreement was a mistake made by singer Katy Perry. Though she and former husband Russell Brand settled amicably, she just as easily could’ve said goodbye to half of her almost 50 million dollars of earnings in an ugly divorce.
It is safe to assume that these celebrities wouldn’t have done what they did in the past if they had thought about the possible outcomes beforehand. Hiring a financial planner (and actually listening to him/her!) could have enabled them to avoid such blunders and enjoy their money throughout old age.