The most common mistake that celebrities, and especially professional athletes, make is ridiculously high spending in their newfound financial success, says Tim Maurer, director of financial planning for Financial Consulate, a Baltimore advisory firm. Celebrities often expect their high earnings to continue, but in reality they often have short careers, marked by bursts of high income. That means they need to spend much more modestly than their last paycheck would allow in order to make that money last, says Maurer.
Real estate mistakes. Dustin Diamond (a.k.a. "Screech" from Saved by the Bell), Evander Holyfield, and Aretha Franklin are among those who have faced housing-related money problems. Part of the problem is that when income is so unpredictable, celebrities can make the mistake of purchasing a home far greater than they can afford. That is one reason financial advisors to the stars often recommend buying homes with cash only, to prevent foreclosure down the road.
Dried-up income. Optimism has no place in plans for the future, at least when it comes to finances, says Maurer, because people—famous or not—need to be prepared for the worst-case scenario, such as disability or sudden loss of income. He says celebrities should estimate the expected duration of their career and life, then predict income levels during working and nonworking periods. Next, they should calculate the average income during the entire span and live off that amount. The rest should be saved.
Do you have a money tip for your favorite celebrity? Please share it below.