It may seem like a stretch to compare the money habits of an A-Lister to the average American, especially when those woes translate into financial fiascoes stripped across magazine covers. But there’s something can be learned from celebrity money woes—even for the average Joe.
1. Pay your taxes. Do names like Willie Nelson, Leona Helmsley, and Marc Anthony come to mind when the subject of tax evasion comes up? There’s something these stars—and you—should remember: The only sure things in life are death and taxes. You must file your taxes every year on April 15. If you can’t make that deadline, you can always file for an extension (that gives you an extra six months to get it together), but even so, that’s just an extension to file. If you owe the government money, you have to pay your best estimate — within 90 percent accuracy — of what you think you owe on April 15 or you’ll be hit with interest and penalties on any balance due.
2. Know where your money goes. While you may not lose a million dollars like Uma Thurman did to her financial advisor Kenneth Starr or can claim that your manager treated you like a personal bank, as did Billy Joel, you should still be aware of where your funds go. Don’t trust just anyone with your money — whether your broker, financial planner, car dealer, or even your mortgage lender — without doing the proper amount of due diligence.
3. Don’t keep up with the Joneses. One of the biggest financial problems that celebrities face is the temptation to live beyond their means — especially in the cases of real estate. Among those either in foreclosure or teetering on the brink: Nicolas Cage, Octomom Nadya Suleman, and several members of the cast of Real Housewives. Remember: Housing costs should not exceed 25 to 28 percent of your monthly income. Before you buy, run the numbers using Zillow’s affordability calculator and monthly payment calculator.
4. Protect yourself with a prenup. Prenups are not just for the rich and famous anymore. While you may not lose $50 million like Paul McCartney did in his pricey split from Heather Mills, you run the risk of losing investments and savings when you divorce. More and more couples are getting prenuptial agreements, and considering that 50 percent of marriages end in divorce, and 60 percent of second marriages do, it may be worth it for you to look into as well.
[See the Secret to Living Well on $40,000 a Year.]
Vera Gibbons is a financial journalist based in New York City and is a contributor to Zillow Blog. Connect with her at veragibbons.com.