How the Rich Go Broke

I just had to add this article on how to go broke like a rock star to my collection of "how rich people go broke" stories. Here are a few of the facts they start with:

• Earlier this year, court documents revealed that Britney Spears doesn't save any of her $737,000 monthly income.

• Last month, the New York Post reported that photographer Annie Leibovitz racked up some $715,000 in debt, despite her $2 million annual contract with Vanity Fair.

• Wrestler/celeb Hulk Hogan spends almost twice as much as the $57,000 he earns each month.

• Dustin Diamond, best known as Screech on the early 1990s series Saved by the Bell, faced foreclosure in 2006, despite royalties from reruns.

• And more recently, Evander Holyfield, Ed McMahon, Jose Canséco, and Aretha Franklin ran into housing-related money problems of their own, despite being former heavyweight champion, Tonight Show personality, ex-slugger, and Queen of Soul, respectively.

So, how did these people with HUGE incomes get into financial trouble? It's very easy to explain -- they spend more than they earn:

"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.

This is why I always say that spending less than you earn is my best piece of financial advice. It's pretty basic and common sense (I often get "no kidding!" sorts of comments when I say it's a good piece of financial advice), but it seems difficult for many people to live by -- even the rich. As I like to say, you may make $1 million a year, but if you spend $1,000,001 per year, you're going backwards financially (though, admittedly, you're probably having a good time doing it.) ;-)

One more thought on how important spending less than you earn is -- it's one of only three steps you need to take to become rich.

Comments

[RDS]

I believe that if you can manage a small amount of money well you can also manage a large amount of money well. If you can't manage a small amount of money, having more money isn't going to solve your problems. It might just get you in over your head faster.

RDS

[pink panther]

Holyfield was a big contributor to the Creflo Dollar church near Atlanta, if memory serves. So much for the prosperity gospel!

[My Daily Dollars]

Good reminder! Sometimes, it's easy to envy what other folks have. However, when I remember that we are able to sock away a nice portion of our budget every month, I feel much better!

[Coolest Checks On Earth]

Isn't that the way we are though?

Most people today spend more money than they make, they think hey i have money, so ill spend here and there and before they know its all gone

[Paul]

Pink - I wouldn't say that Holyfield hasn't been prosperous. But I would say he hasn't been wise.

[make money from home]

It amazes me that they can have all this money and still find things to spend all of it and more on and then the average person lives on a lot less and has to work daily to make money. Footballers are another big segment that don't save and spend more than they earn and they earn high amounts which are unreal to the majority.