How Do The Rich And Famous End Up Broke?

How Do The Rich And Famous End Up Broke?

It’s a familiar story: professional athletes, superstar entertainers and other famous celebrities losing their homes, filing for bankruptcy, delinquent with their child support payments, in trouble with the IRS–just plain going broke, despite having earned millions of dollars during their careers. Meanwhile, we–including evening news anchors, social media instigators, late night talk show hosts, and average, everyday Americans–roll our eyes, shake our heads, and with more than a hint of judgement, if not outright ridicule, ask: How does this happen?

Like you don’t know.

A lifetime supply of basketballs won’t turn you into LeBron James. A warehouse full of art supplies won’t make you into Picasso. Similarly, fame and fortune do not suddenly make you more financially literate. Merely having more money does not mean you will make better financial decisions, without an intervention and a serious commitment to financial education. The average American makes the same poor financial choices athletes, entertainers and other celebrities do. The difference is, we get to do it in private; our money troubles don’t get covered by CNN or TMZ, nor are they shared and deemed a hot mess throughout the Twitterverse. Here are just a sampling of the money mistakes we have in common with our favorite broke celeb:

We live beyond our means. Whether you have a salary of $20,000 or $20 million dollars, if you spend more than you make, you will be broke.

We make financial decisions based on our current incomes, not based on earnings needed over our lifetime. A million dollars seems like a lot of money, until you try to make it last for 40 years. Especially with inflation, and after taxes. And friends and relatives. (Another reason I’m grateful for my haters.)

We assume we’ll always be earning what we’re making now, if not more. We then create a lifestyle based on what we can afford at our peak income potential, as if what goes up, must go up. As a result, we are unprepared when our income drops, or is eliminated all together. In case you haven’t noticed, celebrities get pay cuts, laid off, chronic illnesses and fired, just like we do. Being famous doesn’t stop their bills from coming–in fact, it could be argued that bill collectors and creditors come for them even harder than they would for the average person.

We budget against our gross, instead of our net. Many celebrities live lavish lifestyles, only to have nothing left when the IRS comes for their cut at tax time. Similarly, too many of us budget based on our annual salary, instead of our take home pay.

We finance lifestyles that cannot be sustained for a lifetime. Celebrities who avoid bankruptcy tend to live relatively modest lifestyles. But too many of us follow the examples of the ones with the multimillion dollar homes, the most expensive car they can get a loan for, and huge appetites for shoes, clothes and other high-priced consumer goods–only to face foreclosures, repossessions or worse–like the former NFL star reportedly selling clothes to meet his child support obligations.

We refuse to hire a good financial planner. Or when we do, we don’t take the time to choose the right one. Or when we choose the right one, we don’t listen to them. For example, Dionne Warwick’s publicist blamed her financial troubles, marked by a bankruptcy filing and a huge tax debt, on financial mismanagement in the ’80s and ’90s. How many of us can say the same thing?

We don’t just say NO. Too few of us have the discipline to say no to ourselves, allowing money to burn holes in our pockets or purses just to have the latest kicks, smart phone or other ego-boosting status symbol. And just like many celebs, we too often don’t say no to the friends, family members, and others who will gladly spend your money for you, if you let them.

This last point is a key reason you need to live according to a budget, so you can make money decisions based on your agenda, not the desires of others. It’s also why having a trusted, qualified financial advisor is so important. You can send all funding requests from your friends and relatives (and enemies and strangers, if you’re rich and famous), to your advisor and let her be the bad guy. You don’t pay her to make the decision. (Never let them forget: It’s your money.) You pay her to say no, and to take the blame for standing in the way of your boundless generosity.

Of course, you may not be able to trust her enough to do that, or even know how to choose the right financial advisor, if you refuse to commit to your own financial education. So before you shake your head in disbelief at news of the latest broke celebrity, look at your reflection in the walls of your own glass house, get the lessons, and focus on doing better with your own money choices. And when it comes to celebrities, or anyone going through rough times: If you can’t help, don’t hate.

Black Enterprise Executive Editor-At-Large Alfred Edmond Jr. is an award-winning business and financial journalist, media executive, entrepreneurship expert,  personal growth/relationships coach, and co-founder of Grown Zone, a multimedia initiative focused on personal growth and healthy decision-making. This blog is dedicated to his thoughts about money, entrepreneurship, leadership and mentorship. Follow him on Twitter at @AlfredEdmondJr.