rsz_celebrity-bankruptcies

How on earth do celebrities go bankrupt?

Many of you who read this blog will know that we have a sister blog Money Bulldog. We recently wrote a post on Money Bulldog about famous celebrities who have been made bankrupt in the past and it got me to wondering, when you think of the amount of money they earn how on earth does that happen?

We do see it happen quite often to current or ex singers, film stars, sports stars and the like. Some of whom have – or used to have – weekly salaries that would match or eclipse my annual income. So how on earth do they end up bankrupt or in financial difficulty? I’ve tried to think of a few reasons here, maybe you can think of more.

Bad Business Deals

Sometimes you might look at a celebrity and think they are making millions. Only later do we find out that they signed into a bad contract early on in their careers, meaning the majority of their earnings have unfortunately made their way into someone else’s bank account. This most often happens with bands or singers who are so desperate to make a name for themselves that they sign up to the first deal that comes their way. They also might not be able to afford the proper legal advice in those early days. Sure some may be able to make up for this mistake if they have a long and substantial career but if you’re a one or two hit wonder kind of act then a bad deal like this could really hurt you financially.

Bad Investments

The Money Bulldog post I mentioned talked about Shane Filan, a singer from the group Westlife who invested heavily in the Irish property market and got burned. Can you think of other celebs that made similar poor investments leading to their financial downfall? It’s difficult to believe that they could lose all their money this way but the fact that it happens shows just how risky certain types of investments can be.

Living the High Life

This is the main point I was thinking about when I decided to write this post. Why do most human beings succumb to the desire to live to their means and not in a good way? If we earn $50,000 a year then we buy a house and car to match, if we earn $100,000 then again we buy a bigger and better house and car to match. If we earn $1,000,000 a year then for some reason most people just can’t resist going out and buying a mansion and a few cars. Why can’t we all learn a lesson from Warren Buffett and resist the pressure to alter our lifestyle in line with our earnings and instead save or invest the extra cash instead? (In relatively risk-free investments of course.)

I don’t know whether it’s the pressure from others that makes us buy all these bigger and better things or if it’s just an inner desire to show others how wealthy we are but I do know this, if every celebrity out there today resisted this desire then we would rarely if ever see one go bankrupt.

Divorce

I suppose divorce could be a big cause of bankruptcy too, even amongst high earning celebrities. If they can’t resist the desire to live to their means and even to borrow a shed load of money to spend on houses and cars that require a joint celebrity income to service, then I guess divorce could cause the exact same problems for celebs that it does for the rest of us who earn a more humble salary.

In theory – if they used their money wisely – surely we shouldn’t ever hear stories of celebrity bankruptcies. The fact that we do though just goes to show how powerful the desire to waste your money can be. Perhaps we can learn a lesson here and the next time we get a raise or a promotion, instead of going straight to the realtor or auto dealer maybe we should get online and start researching new savings and investment opportunities instead.

Can you think of any other reasons why a celeb might go bankrupt? Or can you think of any famous people who have?

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10 Responses to How on earth do celebrities go bankrupt?

  1. Debt BLAG says:

    I’d also add inconsistent income to that list. That said, a celebrity who’s gone bankrupt probably lives a more comfortable life than I do…so there’s that

    • Adam Buller says:

      It’s funny how most manage to keep their lifestyle isn’t it. Seems they neglect good investment advice but not the good bankruptcy advice!

  2. There’s a great documentary I watched on Netflix recently that addresses this issue with professional athletes, “Broke” part of the “30 for 30″ series. Anyway, the pro athletes detail exactly how they lost it all- mostly poor guidance and no financial education. Fascinating stuff.

    • Agreed. The “Broke” episode of the 30 For 30 series is pretty insightful with regards to some of the factors that contribute to athletes suffering financial ruin and often filing for bankruptcy.

    • Adam Buller says:

      Not seen that one Stefanie, I’ll have to look and see if I can find it online. Surely if they just stuck half of their earnings into a savings account for a rainy day then they’d be ok? Should be an interesting watch.

  3. I think the biggest thing that causes them to go bankrupt is the “living the high life.” They live like their going to make their current income forever….when in reality for MOST celebrities their time in the light is fairly short.

    • Adam Buller says:

      I’d go with that Brock. I watched a documentary on footballers once and how hard they are to live with when their career is over. When questioned about what they’d do after football many of them just didn’t seem to even want to acknowledge that their career might one day end. If they take that attitude towards money too then I suppose it’s no wonder that some of them fall into serious financial trouble.

  4. Kaathy says:

    I’m going to go out on a limb here and say something that may not be very popular, nice or politically correct. Just because someone is a celebrity, athlete etc. doesn’t mean they are smart. They may have a talent or skill but many of them never went to or finished college. And in high school, the athletes were often coddled and passed in spite of not mastering the material. Plus, many of them have never had their own money to manage so people are easily able to take advantage of them. And I don’t mean managers etc., but friends and even family members take advantage of them as well. If they never had $1000 to manage, they sure as heck will be unable to manage millions.

    • Adam Buller says:

      Great points Kaathy! The documentary I mentioned in my response to Brock’s comment also showed how sports clubs and franchises often completely look after the finances of their players so that they can concentrate fully on the game or sport. Even to the point where some of them had never had to tax or insure their own car before. Maybe they get taken advantage of easily by the so-called experts. This is reminding me of one of the Rocky films. :-)

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