You may not have paparazzi following you, but many celebrities wind up broke. These cautionary tales are applicable for business owners large and small.
It never ceases to amaze me how some people that achieve tremendous financial success in relatively short time squander it all. Celebrities—whether actors, athletes or “media personalities”—are the main culprits. Toni Braxton, the singer, song writer and actress, has sold over 40 million albums worldwide. Despite the nine figures in revenues she has generated over her career, she has filed for bankruptcy twice. Nicholas Cage, who in 2009 alone earned over $40 million, is scrambling to avoid bankruptcy as he simultaneously tries to settle a multi-million dollar unpaid tax bill, sell off real estate holdings at a loss and sue his financial adviser who he blames for the mess. One of the saddest examples is Mike Tyson, the youngest heavyweight champion ever, who earned over $300 million before his 35th birthday. He was bankrupt by age 37.
How does it get to that point? In my analysis, I see five main reasons why so many celebrities wind up losing everything. The paparazzi may not be chasing you down the street but, as a business owner, the possibility of making large amounts of money in a short amount of time exists. You are also susceptible to the same risks that celebrities are exposed to when it comes to money.
Unrealistic assumptions of future earnings
Success doesn’t last forever. When many celebrities are achieving their peek earnings, they fail to recognize it. They assume that the best is yet to come. These unrealistic assumptions about future earnings cloud their judgment when it comes to savings and spending. How realistic are your assumptions about projected earnings?
Confusing sexy advice for sage advice
Part of being a celebrity is living in the moment and following the hottest trends. Some celebrities with mega-star status actually start trends. While being trendy may help you increase your star-power, it can be disastrous for your financial condition. They fall prey to people pitching them on the latest, most exotic “investment” (I use the word lightly) ideas. Nicholas Cage’s financial problems stem mainly from his attempts to become a real estate flipper with high-end luxury properties.
For investments, boring is sexy. Small business owners need to heed this advice very carefully. A large portion of your wealth is tied to your business. This concentration is risky. Any additional cash available to invest outside of the business should be invested conservatively.
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