They say history has a way of repeating itself, and that certainly seems to be the case when it comes to big name celebrities losing substantial amounts of wealth. Two years ago, Rapper 50 Cent, whose fortune was once estimated at more than $150 million, joined the likes of Billy Joel, Kim Basinger and Larry King, as another very wealthy celebrity to file for bankruptcy in an effort to reorganize his finances and repay his creditors.
Most people have a difficult time understanding how this can happen. After all, having millions of dollars stocked up in the bank, and millions more coming in all the time, how in the world can someone with that kind of money burn through all of it and even go into debt?
Here are five reasons why it happens.
Whether they are athletes, actors, singers or whatever, they start to believe they will never outspend their income. It’s a pretty convincing argument when you have so much money that you don’t know what to do with it all. But it’s also a psychological trap and the main reason people who once had wealth lose it all. They become financially careless, buying $50,000 watches, big homes, fancy cars and other unnecessary items. It’s pretty easy to get swept up in emotional delusion when you have the money. It’s also a one-way ticket to filing for bankruptcy.
With success often comes ego. Some people who make it big and acquire massive sums of money are as humble and down to earth as they were before they had all that money. But all too often, the success they’ve had in their career and staring at all those dollar signs next to their net-worth goes straight to their head. Their ego-based thinking kicks in and makes them believe their lifestyle needs to match their level of success. And when they acquire one item, the ego tells them they need the next latest and greatest thing or they’ll never be happy. Ego-based thinking is extremely destructive and can bring down even the largest financial empires.
Think back to pre-2008 and the Great Recession. I knew many wealthy people who were on top of the world, extremely confident that they would never lose all they had acquired, and I bet you knew some, too. And sadly, many of those people lost their fortunes, their businesses and their very way of life. The point is no one can predict the future. While it’s great to be optimistic about what’s coming next and have high expectations, never get too confident. Just as no one expected the country to fall into such a deep recession, nobody knows what tomorrow holds. Once you become successful and rich you don’t just go on autopilot. Don’t let your guard down. Keep looking for new ways to make money and leverage the success you already have, and never for a minute become overly confident.
For many famous people who have filed for bankruptcy, vanity, or excessive pride in one’s appearance, qualities, abilities and achievements is enough to drive them over the edge and rob them of all their money. In the 24/7 digital age, many celebrities are more on top of their image than ever, and feel as if they need to show off their great success and money. They start to live by the mindset of “Look at me. Look at my stuff. Aren’t I great?” They stockpile worthless items and possession to portray an image to what they feel resembles everything they have achieved.
Lack of education
Some celebrities do have an Ivy League education and know a thing or two about money, but many grew up on the street or come from poor families and went from knowing nothing about the real world and basic financial principles to overnight success. When you take someone who has had nothing and all of a sudden give them an over-abundance of it, they don’t know what to do. When this happens with money, the result is often rich one day to completely broke the next. Lack of knowledge is not an excuse, but certainly one of many reasons why people who find such huge success and great wealth often lose everything they have.
When you come into money, there are two important things to do: get professional advice from a good financial advisor who you feel comfortable with and who can help you manage and grow your money, and while it’s okay to enjoy the financial freedom, don’t get carried away by emotion; keep thinking logically.
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