Top 5 Celebrity Money Mistakes And What You Can Learn From Them

Top 5 Celebrity Money Mistakes And What You Can Learn From Them

It’s easy to assume that celebrities, with their larger than lifestyles and fat bank accounts, are also good with money. But having plenty of money doesn’t mean they know how to manage their cash flow or invest it properly. Many have struggled with advocating for themselves or negotiate the right pay or trusted the wrong people to manage their finances.

Let’s take it a step further. Have you ever found looked at someone you admire at work or in personal life, who might be exceptionally good at something, totally suck at other things? E.g. I know a lot of people in my personal life who are extra ordinary at work but when I speak to them about personal finance, it becomes very obvious, how little they are aware of it. It’s almost as if they are totally oblivious to this aspect of their life.

Top 5 Celebrity Money Mistakes

In both these cases, one thing seems to be common. There is an underlying assumption here is that:

If you are good in one aspect of your life, it means you’ve it all figured out in other aspects of your life as well. It’s hard for our brain to discern person from their personalities. Hence we vote famous movie actors to be governors. It’s no wonder the correlation is quite natural.

It’s for this reason that when you read about the money mistakes of the celebrities I am going to share, you’ll be tempted to say, “How could they be so stupid with money?”

Today I am going to share the top 5 celebrity money mistakes and what we can learn from them. As you go through each one of them, you’ll notice how these celebrities are no better than any of us who might be equally bad with money. The mere fact that they are celebrities doesn’t shield them from making these mistakes.

1. Larry King – Penny Wise Pound Foolish

Back in 2007, Larry King, the famed TV show host, said he lost millions when he sold a pair of life insurance policies worth a total of $15 million for $1.4 million in a deal called a life settlement.

Larry King
Larry King
Courtesy – Wikipedia

What Happened?

A policyholder sells his or her policy for cash to an investor who takes over the premium payments. The investor collects the death benefit when the insured dies. Candidates for life settlements are typically 65 or older and own a life insurance policy with a face amount in excess of $100,000.

All of this was made legal because in 1911, the U.S. Supreme Court, issued a landmark decision in the case of Grisby vs. Russell, which recognized the rights of the life insurance policyowners to transfer ownership of their life insurance policies to a third party, who happened to be unrelated to the policy owner or insured and who did not hold an insurable interest in the policy owner or insured.

Why Is It Bad?

According to Larry King, he was tricked into selling two policies valued at $15 million. The hook? Some quick cash, and a promise he could buy new insurance.

With a history of health problems, Larry King would better off keeping the insurance policies than making some quick money. Not only did this transaction trigger a huge tax bill, but it also made his insurance premiums to sky rocket. It was a classic “scam” and he fell hard for it. In some cases, you might even become “uninsurable” due to age and other health reasons. So tread carefully.

What Can We Learn?

1. The Insurance Information Institute advises everyone to stay away from flipping. It’s legal, but you pay taxes on profits from selling policies. It’s just not worth it.

2. Another common industry practice to avoid is called “churning”, means replacing a policy when it’s not necessary to do it. The agent or broker makes money, so it’s in his or her best interest to get you to do it. Don’t do it.

Honorary Mentions

2. Mike Tyson – Spend More Than Your Earn

If there is one theme common to many celebrity mistakes, it’s go to be this. This is such a basic concept yet so hard to practice. If you think lack of knowledge about personal finance is bad, you know what’s worse? It’s earning a lot of money, in millions, and not having any idea of what to do with it. It can really mess up your life. This happens to a lot of celebrities and athletes who suddenly find themselves in larger than life sort lifestyle which is very unsustainable.

Mike Tyson
Mike Tyson
Courtesy – Yahoo Sports

What Happened?

Mike Tyson, world heavyweight champion and worth $300 million at the height of his career in boxing, was also heavy on his spending habits.

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Sample some of his outlandish spending habits:

  1. Over $4 million in owning 100+ cars
  2. $2 million on a golden bathtub for his first wife
  3. $140,000 on two White Bengal Cubs, which were reported to require food worth $1,000 per day.

By 2003 Mike Tyson was in a sea of financial troubles and he was forced to declare bankruptcy, despite having received over $30 million for several of his fights and $300 million during his career.

He owed money to a lot of people that included:

  1. The IRS demanded $13.4 million
  2. British tax authorities were owed $4 million.
  3. Seven law firms were owned more than $600,000
  4. The treasuries of Georgia and Michigan were owed $317,201 by Mike Tyson Enterprises.
  5. Tyson had to pay $9 million in a divorce settlement and was also behind on child support.

Why Is It Bad?

Mike Tyson is a classic example of how too much money and no education about personal finance can wreck not just your finances but your whole life. In an interview with USA Today published on June 3, 2005, Tyson said, “My whole life has been a waste – I’ve been a failure.” He continued: “I just want to escape. I’m really embarrassed with myself and my life.” It just goes to show how bad his life was messed up.

What We Can Learn?

1. Live on less than you make.

2. Your hobbies can really cost you a lot of money, choose them wisely.

3. Don’t owe money to the IRS.

Honorary Mentions

3. Kim Basinger – Real Estate Is A Double-Edged Sword

We are always told that real estate is a good investment and when we hear that, we visualize consistent stream of income from our real estate investments. But this specific deal didn’t end well. It in fact turned out to be a night mare and all the grand plans never materialized.

Kim Basinger
Kim Basinger
Courtesy – Wikipedia

What Happened?

In 1989, Kim Basinger, Basinger and some partners purchased more than 1,700 acres in Braselton, Georgia. A Georgia native, Basinger’s plan was to turn the small town into a tourist attraction that featured movie studios and a film festival.

While she was there, she saw a sign that read: “Braselton: If You Lived Here, You’d Be Home by Now” and evidently there was no turning back. We’ve seen similar signs outside condos near packed freeways in Oakland, Calif., but have never thought of buying the entire city.

Why Is It Bad?

Things didn’t go as planned, and she eventually sold the town in 1993 for $1 million. In the end, she lost $19 million. Ouch!

If that wasn’t enough, she pulled out of the controversial film Boxing Helena (1993), resulting in the studio’s winning an $8.1 million judgment against her. Basinger filed for bankruptcy.

What We Can Learn?

1. Always do your due diligence before investing money in real estate

2. Don’t make big money moves on your whims. They can come back and bite you big time.

Honorary Mentions

4. Jennifer Lawrence – Ask For What You Are Worth

We’ve all been at jobs where you might have found out that a co-worker (with same roles and responsibilities) was being paid more and it pissed you off. According to this report from the Institute for Woman’s Research, Women today earn just 49 cents to the typical men’s dollar, much less than the 80 cents usually reported!

Jennifer Lawrence
Jennifer Lawrence
Courtesy – Cindy Ord/Getty Images

What Happened?

According to a leaked emails from Sony Pictures revealed that Lawrence was paid less for the movie than her male co-stars, Bradley Cooper, Christian Bale, and Jeremy Renner for her role in American Hustle. This came after Lawrence became one of the youngest-ever Oscar winners for her role in “Silver Linings Playbook.”

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Why Is It Bad?

In her own words, “I didn’t want to seem ‘difficult’ or ‘spoiled,'” she wrote. “At the time, that seemed like a fine idea, until I saw the payroll on the internet and realized every man I was working with definitely didn’t worry about being ‘difficult’ or ‘spoiled.’ … Jeremy Renner, Christian Bale, and Bradley Cooper all fought and succeeded in negotiating powerful deals for themselves. If anything, I’m sure they were commended for being fierce and tactical, while I was busy worrying about coming across as a brat and not getting my fair share.”

What We Can Learn?

1. Don’t low ball yourself and get into a work arrangement where you are paid less than your peers for the same work.

2. Always negotiate before accepting any offers. It is more feasible in jobs which have lots of data available and these tend to be corporate jobs. Do your research and don’t leave money on the table.

Honorary Mentions

5. Billy Joel – Ignorance Is Not Bliss

When it comes to money, it certainly pays to educate yourself. If you are ignorant, not only will you not be able to maximize your income, but you’ll also fail to keep the money you earn.

Our next celebrity mistake is from the famous music legend Billy Joel. His ignorance and blind faith in his ex-brother in law to manage his money, literally cost him millions of dollars.

Billy Joel
Billy Joel
Courtesy – Kristian Dowling/Getty Images

What Happened?

Billy Joel may have his own share financial misfortunes, but losing $90 million by trusting his ex-brother in law is just cruel. Joel worked with Frank Weber, who acted as his manager at one time and easily siphoned $90 million from Joel.

The money was used to fund several investments that made Weber wealthy but were not in Joel’s best interests. 

Why Is It Bad?

According to Billy Joel, staying away from money was his way of proving to the world that he wasn’t in the business for just the money. Somehow the issue of money had become a moral issue for Billy.

“I stayed away from it on purpose as if it would compromise my ‘artistry,'” Joel admitted to the Washington Post. “For a long time, I was overly sensitive to this accusation that I was a hitmaker-meister just grinding it out for the money. So I proved I wasn’t doing it for the money because I didn’t know anything about my money — and that way I’d know that I had ‘integrity.'”

Source – Billy Joel’s Midlife Confessions

In 1989, Joel sued Weber for $90 million for “breach of fiduciary duty,” and received a summary judgment and awarded initial damages of $2 million. The worst part? Weber paid $250,000 before declaring bankruptcy in 1990.

What We Can Learn?

1. Be careful about who does your finances

2. Educate yourself about personal finance. It pays to learn how to handle money.

Honorary Mentions

It’s apparent by now that being ignorant about personal finance can sot you a fortune. I urge everyone to spend time and educate yourself about personal finance. It can been very daunting and overwhelming, but don’t give up.

Summary

1. Don’t fall for “Get Rich Quick” schemes
2. Live on less than you make
3. Real estate is a double edge sword. Tread with caution.
3. Always negotiate and ask for what you are worth. Don’t leave money on the table.
4. When it comes to personal finance, ignorance is not bliss. It can literally cost you millions of dollars if you don’t pay attention.

1 thought on “Top 5 Celebrity Money Mistakes And What You Can Learn From Them”

  1. Another celeb (or pair of them in this case) that made a big mistake was Kyra Sedgwick and Kevin Bacon. They entrusted their money to Bernie Madoff and lost most of what they had. It’s a reminder that when something seems to be too good to be true (guaranteed returns) it probably is.

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