We all make bad money decisions from time to time. But when someone famous makes a big financial blunder, we all get to learn from their mistake. The truth is that while a lot of people look at news stories about celebrity mistakes they discount it as gossip and not worth the time. However, even though celebrities make financial mistakes that cost fortunes, their lessons can be applied to those of us who only risk losing a few thousand or a few hundred dollars. Here are the things that celebrities have learned the hard way, so that you can I can avoid them in the future.
A Credit Card is Not For Everyday Use
If you need to use a credit card, think of it like a loan with a terrible interest rate. The worst interest rate available. You only use a credit card if you have no other choice and you know you will pay it off quickly. Because the longer you carry a balance on a credit card, the more expensive the item gets. Everything you buy with a credit card is already carrying a huge tax, both financially and psychologically.
Celebrities who use credit to purchase expensive things anyway, and who have hundreds of thousands of dollars in credit, can turn themselves into a disaster quickly. Just ask Nicolas Cage or MC Hammer.
Pay Your Taxes
And do it on time. Many of us fall into financial trouble with the US government just because we don’t understand how things work. You can do your taxes in January. Or February. Or March. But most people wait until April, and get their taxes done just in time for the April 15th deadline. Why not do them early? If you don’t pay your taxes on time you’ll owe interest and fees on anything that is overdue. Even if you get an extension. You still have to pay what you think you owe by April 15th.
Celebrities who have famously burned themselves include Willie Nelson, Leona Helmsley, Marc Anthony, and Richard Hatch. And those are just the people we know about.
Live Within Your Means
Something about becoming famous seems to blind people to the fact that the money, no matter how much it is, will end eventually. How do people who have millions of dollars, who make over a million dollars per year, manage to spend it all and go into debt? They live outside of their means.
For those of us in the real world, this is even trickier to manage. Yes, you should have a budget. You should know exactly how much money you make every month. Not your salary, but the amount of money that makes its way into your bank account. You can figure that out. Next, look at your bills and add up all your monthly expenses: rent or mortgage, car payments, insurance, cell phone, internet, Netflix, Cable or Satellite TV, the list goes on and on. Your housing costs shouldn’t be more than 25% of your income. That means if you make $4000 per month, your rent or mortgage payment should be no more than $1000.
If you’re Nicolas Cage, and you bought a bunch of mansions (15 or so), expensive cars and motorcycles (Bentleys, Benzes, etc), and charged up your credit cards with expensive meals at restaurants every day, you should be embarrassed. Find out how to cut the expenses you can’t afford, before you end up as an unknown casualty of a celebrity money mistake.
George Gallagher is a celebrity and money blogger. He also has a knack for issues concerning private student loans and other financial issues involving students.