Most magazines on the newsstands love to remind us that celebrities are just like us – they hang out with their kids on the weekends, they go grocery shopping without makeup, and more. But what most of the magazines don’t remind us of on a regular basis is that celebrities make the same financial mistakes that a lot of us make too. The only difference is the more money you have, the more you have to lose!
Here are 5 celebrity financial faux pas you can learn from.
Protect Your Assets
Many celebrities have lost half their assets in a divorce by not protecting them properly with a prenuptial agreement. For example, Katie Perry reportedly owed $20 million to Russell Brand in their divorce because they didn’t sign a prenup.
- The Takeaway: While it may not seem like this has anything to do with members of the general public, even us “common folk” should consider a prenup if we have a large amount of assets, or if one partner earns a significant amount more than the other.
Know How Much House You Can Afford
Part of being a celebrity seems to include owning lavish cars, clothes, and homes. But even some celebrities wind up spending more on a home than what they can really afford. Kirsten Bell’s home went into foreclosure in 2012 and reportedly was auctioned off for $500,000 less than what she paid for it. Oops!
- The Takeaway: The lesson here is to make sure you only a buy a house you can afford. After all, no one wants to be house poor.
Don’t Live Off Credit
We all love a rags to riches story, but not many enjoy a riches to rags story, especially when it happens because rich people live off of credit. Many celebrities, including Mike Tyson, Gary Coleman, and Willie Nelson, have learned this lesson the hard way. They all ended up filing bankruptcy due to their bad habits of overspending and living off credit.
- The Takeaway: To avoid this problem, you should create a budget and make sure you are spending less than you earn every month.
Pay Your Taxes
Because I earn money from freelancing that isn’t taxed, I have to send in quarterly tax payments to the federal government. I hate writing that check and seeing the money I worked so hard for leave my account, but I know it comes with the territory. Apparently, not all celebrities are so aware. Many celebrities have been convicted of tax evasion in the past, like Martha Stewart and Nicolas Cage.
- The Takeaway: Paying the tax man isn’t fun, but it is necessary if you don’t want to be hit with a huge bill, and possibly even jail time, for owing back taxes.
Create a Will
When Hollywood actor Heath Ledger passed away, his will hadn’t been updated in years. Unfortunately, two of the most important people in his life weren’t included in his will. Since the time it was last updated, he got involved in a very serious relationship with girlfriend Michelle Williams, and the couple even had a daughter together. Neither of them were included in his will. When his assets were divided, it created a lot of tension in his family that could have been easily avoided had updated his documents after such a big life change.
- The Takeaway: A general rule of thumb is that you should review your legal documents, like your will, every year or two. Whenever you experience a big life event, like a marriage, divorce, or the birth of a child, you should also update those documents.
Are you guilty of any of these celebrity financial faux pas?