Celebrity Spending & 5 Financial Snafus Anyone Can Learn From...
Financial planning is, in our opinion, essential to a secure retirement. We like to compare a financial plan to a road map. If you were to embark on a long journey with no map, GPS or road signs, it seems unlikely you would arrive at your destination. If you did, it would be the result of luck or a lot of wrong turns.
Creating a plan or road map for your personal finances is essential, no matter how much money you earn. This goes for both normal Americans and celebrities. A poor financial decision can lead to the same challenges for everyone. To examine this further, here is a list of some of our favorite celebrities and five takeaways from their financial snafus.
Famous singer and performer, Aretha Franklin was a prolific musician. With 73 chart-topping songs to her credit, Franklin amassed a substantial fortune during her career.(1) Unfortunately, Franklin passed away in 2018 with no will, trust or any financial planning documents detailing how her estate was to be divided.(2)
A question we often ask people is: ‘What is your estate plan?’ When people say, “I don’t have one”, our response is, “Yes you do. It’s called the state of Michigan”.
Since Aretha Franklin did not have these documents in place, her estate was distributed amongst her children per Michigan law.
When an individual passes without a will, their estate can go through several legal and financial hoops. A study conducted by AARP in 1989 found that the cost for probate was more than $2 billion each year with attorney fees representing $1.5 billion of that amount. From a financial standpoint, this process can, obviously, be expensive, reducing the overall value of an estate. AARP also found probate process to be time consuming; taking an average of 9 months to complete.
Another potential hurdle is the strain on family relationships. Parents often never discuss their finances and views on wealth with their families. The result often ends in family squabbles and broken relationships. Several years ago, I had a client come in and tell me that she and her sister had a great relationship… until their parents died. She said, “Nick, we have been reduced to fighting over teacups.”
The loss of a parent is not only emotional but can be stressful as well. Without specific instructions, the family of the deceased may disagree on the dispersal of the estate, resulting in more complications. A will provides a clear plan for the family to ensure the last wishes of the deceased are respected.
To avoid being perceived as inauthentic, some artists avoid focusing on their money. Billy Joel, the author of hits like “Uptown Girl”, “Piano Man” and “Only the Good Die Young”, took this approach. Billy did not want to know how much money he had and refused to detail his spending. Instead of taking an interest in his income and spending, Mr. Joel chose to solely trust his manager. As a result, Joel’s manager took advantage of this willful blindness, spending and investing Joel’s money in multiple ways without approval. In the end, this led to Joel suing his manager for $90 million.(3)
Understanding one’s finances and facing them with an open mind is integral to healthy money management. Compiling a list of expenses and clarifying where your money is allocated is a great first step. And if you are looking for extra assistance, investment advice or other financial guidance can help.
Overspending entraps many Americans, including the rich and famous. There are countless examples of movie stars, athletes and other celebrities who are known for overspending. However, one of the most notorious in recent history is Nicholas Cage. The well-known American actor spent $150 million of his accumulated wealth on a variety of purchases. He not only acquired multiple castles in Europe, but also purchased the $3.4 million LaLaurie mansion in New Orleans, known as one of the most haunted houses in America. Nicholas also spent $150,000 on a pet octopus, $150,000 on the first Superman comic, $276,000 on a dinosaur skull and even bought several shrunken pygmy heads, not to mention his car collection.(4)
Cage’s purchases aren’t necessarily the problem it’s how quickly and how often they occurred. When you earn $150 million, making an occasional purchase is ok. But 15 homes? A pet octopus? A dinosaur skull?
Maintaining a budget and spending well should be the goal of any individual and is one way to not only accumulate wealth but to maintain it as well.
Home buying is a large investment that can be both stressful and exciting. Unfortunately, many individuals from all walks of life fall into financial troubles, and their home is at risk. Sadly, this exact situation happened to actress Kristen Bell, when her $3.1 million home went into foreclosure.(5)
Bell was luckily able to recuperate her losses. Though for many, a foreclosure has drastic consequences, from credit damage to possible bankruptcy.
We’ve all heard of Facebook, but does anyone remember Myspace? In case you are not familiar, Myspace was the predecessor to Facebook and was popular back in the early 2000’s.
What many people don’t know is that Justin Timberlake was involved in the purchase of Myspace with hopes to reestablish the social media platform?(6)
It sounded like a good idea at the time. However, in the end, Timberlake took a loss on his $35 million investment. Obviously, this turned out to be a poor investment decision for him.(7) As any financial professional will tell you, investing always comes with risks. Instead of putting all your eggs in one basket and investing in one goal, diversification can be used to help offset risk.
Every name on this list has accumulated a large sum of wealth. Despite that, these celebrities often experience the same financial troubles as anyone else - although sometimes on a grander and more public scale. Examining specific situations, we can see the importance of an effective financial plan, no matter how much your net worth.
-----------------
Sources:
1. https://www.billboard.com/music/aretha-franklin
2. https://www.britannica.com/biography/Aretha-Franklin
3. https://www.latimes.com/archives/la-xpm-1989-09-26-ca-257-story.html
4. https://www.cnbc.com/2018/01/19/how-nicholas-cage-once-blew-his-entire-150-million-fortune.html
5. https://attorneycordero.com/blog/home-belonging-to-kristen-bell-foreclosed-upon/
6. https://www.theguardian.com/technology/2011/jun/30/myspace-internet#:~:text=Justin%20Timberlake%20buys%20his%20own%20social%20network%20with%20Myspace%20investment,-This%20article%20is&text=The%20singer%20turned%20actor%2C%20who,online%20advertising%20company%2C%20Specific%20Media.
7. https://empirenews.net/justin-timberlake-sells-his-shares-of-myspace-for-one-dollar-to-unsuspecting-fan/
This content is developed from sources believed to be providing accurate information and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security.
Securities offered through IFP Securities, LLC, d/b/a Independent Financial Partners (IFP), member FINRA/SIPC. Investment advice offered through IFP Advisors, LLC, d/b/a Independent Financial Partners (IFP), a Registered Investment Adviser. IFP and Callesen Wealth Management are not affiliated. Past performance is no guarantee of future returns. Investors cannot invest directly in an index. Diversification and asset allocation do not guarantee returns or protect against losses. The information given herein is taken from sources that IFP Advisors, LLC, dba Independent Financial Partners (IFP), IFP Securities LLC, dba Independent Financial Partners (IFP), and it advisors believe to be reliable, but it is not guaranteed by us as to accuracy or completeness. This is for informational purposes only and in no event should be construed as an offer to sell or solicitation of an offer to buy any securities or products. Please consult your tax and/or legal advisor before implementing any tax and/or legal related strategies mentioned in this publication as IFP does not provide tax and/or legal advice. Opinions expressed are subject to change without notice and do not take into account the particular investment objectives, financial situation, or needs of individual investors.