Image Credit: Unsplash
You don’t have to look far to find examples of celebrities who have made millions of dollars and then lost everything. It seems that every week, there’s some familiar name in the news talking about filing for bankruptcy or having to sell their lavish home.
This phenomenon isn’t relegated to any one area of celebrity, either: there are examples of celebrity actors, athletes, musicians, and even YouTubers who all seemed to fall victim to the same pattern of events.
So why is it that so many celebrities end up broke?
Deceptive Wealth
For starters, the amount of wealth that these celebrities generate and have can be a bit deceptive. When you see people wearing high fashion clothes and expensive jewelry, and you see them driving fancy cars to fancy events, it’s natural to assume that they have a lot of money in the bank. But this isn’t always the case. Online records of personal net worth aren’t always accurate, and these outward appearances aren’t necessarily reflective of how much money these celebrities make. It might seem like someone is making millions of dollars every year, but the reality may be much more modest.
Lack of Spending Discretion
Arguably the biggest reason why celebrities go broke is because of lack of spending discretion. This is a somewhat intuitive concept, as most people have experienced a lack of spending discretion at some point in their lives. If you were making millions of dollars a month, you too would probably spend the money on some questionable items and services.
The problem for many celebrities is that this spending spirals out of control. They buy multiple lavish properties, multiple fancy cars, and clothing and accessories that won’t necessarily hold their value. They get used to an extremely expensive lifestyle, so when even a minor hiccup threatens their income or material wealth, everything begins to collapse.
To make matters worse, many celebrities spend more than they actually make, in anticipation of tremendous future earnings. This puts them into debt, which can then start a spiraling financial pattern that they ultimately can’t keep up with.
Almost any system of financial benchmarking and monitoring could hypothetically prevent this issue. However, many celebrities don’t have the foresight or guidance necessary to set financial parameters for themselves.
Cost of Doing Business
In some cases, the problem is complicated by the cost of doing business. If you want to land major acting roles, you should probably live in LA. If you want to secure major contracts, you need solid representation. Costs associated with managers, attorneys, private security, and even transportation can take a heavy toll – even on someone with exorbitant income.
Failed Business Endeavors
It’s common for celebrities to attempt to do something productive with their wealth. They use their assets to purchase conventional investments but also invest in new business ventures. Sometimes, these investments pay off ridiculously well, both nominally and in terms of experience. But sometimes, a celebrity’s lack of business acumen causes the venture to end in total failure. A significant enough failure can jeopardize their entire net worth.
Declining Fame
The concept of “15 minutes of fame” has been around for longer than most people think. In fact, it has potential origins in the Elizabethan era, with the circulation of the expression “nine days’ wonder.” Put simply, tastes and talents change. Over time, many celebrities have suffered from sharp or protracted declines in popularity, causing them to earn far less money than they thought they would. This is typically a complicating factor, making the other factors on this list sting much worse.
Lawsuits and Legal Trouble
It’s not uncommon for celebrities to occasionally deal with lawsuits and other legal problems, especially if their work is based on contractual agreements. In some cases, they can end up owing more money to a record label or studio than they ended up making. In others, steep legal fees and penalties can leave celebrities financially burdened.
Divorce and Family Issues
Finally, remember that divorces and other family issues can make a major impact on a person’s net worth, and sometimes even their earning potential. If a celebrity gets married before their big break, and if they get divorced during peak earnings, they may not be able to keep up with alimony or child support payments after their fame declines. There are legal remedies to deal with this, but it still puts a heavy burden on those celebrities in the short term.
There are hundreds of stories of celebrities accruing and losing massive amounts of money, and there will be even more in the future. Because there are so many factors influencing celebrity wealth and decline, it’s unlikely that there will be major changes to this phenomenon in the coming years.
Disclaimer: This article is for informational and entertainment purposes only. No part of this article is meant to constitute financial advice or function as a substitute for professional financial services.
