Why Celebrities Go Broke?

Wealthy celebrities go broke every year. People always seem dumbfounded about how some wealthy celebrities have to file for bankruptcy after making millions of dollars. Are these celebrities dumb or are there several reasons why they go broke?

The average celebrity makes most of their income in a very short time period. The average popular musician or professional athlete is not making millions of dollars for a long time. The average NBA career is five years. The average NFL career is three ½ years. Therefore, most celebrities cannot predict how long they will be rich. They do not know when their careers could be cut short. Musicians do not know when they will become unpopular. Actors and actresses do not know when they will stop getting good movie offers. Therefore, if they do not live below their means their money can vanish fast. Their income could drastically reduce in upcoming years.

Most celebrities have a plenty of family and friends asking for money. They have people in their lives trying to freeload off their money and success. If a successful celebrity is naïve and too trusting people can take advantage of them. If they fall into that trap they will have financial difficulties. Many athletes and musicians have entourages. For instance, M.C. Hammer had a 40 person entourage. They were all on his payroll. There were plenty of people in his entourage that just hanged out. They were not really helping M.C. Hammer in a significant way. This helped lead M.C. Hammer to overspend his money to the point of bankruptcy.

Bad investments are another reason celebrities go broke. Business owners, financial advisors, and accountants take advantage of celebrities' lack of financial knowledge. They will persuade them to invest in businesses that have little chance to succeed. They see celebrities as an opportunity to get the money they need for their business ideas. For instance, Raghib "Rocket" Ismail a former NFL player squandered most of his fortune funding an inspirational movie, music label and Rock N' Roll café. All the business opportunities failed. It led him to lose millions of dollars. Likewise, there are pyramid schemes which are a non sustainable business model that involves the exchange of money primarily for enrolling other people into the scheme, often without any product or service being delivered. For example, federal prosecutors charged a woman who once alleged Michael Vick and several other football players with stealing three million dollars from eight victims in a pyramid scheme. Vick sued them to get two million dollars back.

Celebrities that have a large amount of children by different mates can dig themselves into a financial hole with child support. Child support becomes expensive when you have 4 or more children. Former NFL player Travis Henry has nine children by nine different women. His child support is 170,000 a year. He can no longer afford to pay it. Likewise, Jason Caffey former NBA player has 10 kids by 8 different women. He is 200,000 back in child support payments.Additionally, Evander Holyfield has made hundreds of millions in his career. He pays 500,000 a year in child support with his 11 children. Child support of course is important and necessary. But, when you pay for it for multiple children for 18 years it is going to lower your income.

Overspending is a big reason for celebrities going broke. The old cliché it is about what you do with what you make and not how much money you make is true. Regardless of whether someone is making 20,000 or 500 million a year there is always the possibility of going broke. There are celebrities that once they start spending they have a hard time stopping. They keep spending thinking that the money will last forever. But, that is just not the case. There needs to be a limit on spending. Nicholas Cage is the most recent case of a celebrity that fell into the trap of overspending. He overspent and he lived a lavish lifestyle. For instance, he had 22 cars, 47 pieces of high prices artwork, 4 yachts and 15 expensive homes. Additionally, the late pop star Michael Jackson overspent throughout his life. The TV documentary Living with Michael Jackson showed his shopping habits when he spent over 6 million dollars within a few hours.

Celebrities go broke for many reasons. However, it is not always as simple as overspending. Being rich comes with a lot of responsibility. Therefore, they need to make sure they have people they can trust that can help them make a good financial plan.