It’s almost sickening how much money some sports and entertainment stars make. But it’s really sickening to hear how some blow their riches and wind up back where they started: poor.
If I made several million dollars, as some celebrities do, I wouldn’t invest in risky ventures. I wouldn’t turn over my wealth to shady money managers. I’d take my six-figure paycheck down to the local bank and stick it in a safe, boring savings account.
Hell, if you’re already making millions, why take big gambles to make more millions?
Yet we constantly hear about stars who frittered away their sudden wealth with bad investments or extravagant living.
One of the latest I read about: former basketball great Allen Iverson. Iverson earned more than $200 million in salary and endorsements over his long All-Star career, yet he recently filed for bankruptcy.
How is that even possible to squander that much money?
Well, it doesn’t help to run up a $859,000 tab at a jewelry store. I’m sure Iverson – or his wife or girlfriend or handlers – needed every bit of that jewelry.
Iverson, a guard who played for four NBA teams from 1996 to 2010, is now talking about making a comeback to help pay his debts.
Lessons to learn from Iverson’s fall
What can we learn from Iverson’s stunning financial collapse?
- A big paycheck may not last forever. At the peak of his career, Iverson commanded $10 million or so a year. Did he think he’d make that much indefinitely? He didn’t. His skills inevitably faded, and his market value plummeted. Learn from Iverson. Even if you’re making a big salary now, you could be unemployed next week. Companies go belly-up. They get taken over by other companies that purge the workforce. Never assume you’re too valuable to get fired.
- Live below your means. This lesson relates to the one above. If you learn to spend less than you earn – no matter your salary – you’ll always have a cushion of savings. People from celebrities to fast-food workers get in financial trouble when they live beyond their means.
- Be careful who you trust to handle your money. Iverson, reportedly, had a childhood friend as his financial adviser. Apparently, he or she didn’t do such a good job. Do you have an uncle who wants you to invest in a get-rich scheme? Don’t. It’s never a good idea to trust friends or family members with your money. Personal loyalty shouldn’t cloud your financial judgment. Hire a money manager like you would a plumber. If either does a poor job, find someone else.
- Think long and hard about big purchases – and how much they could cost over time. Want a vacation home on the beach? Cool. Maybe you can afford to buy it. But can you afford the insurance, taxes and maintenance? If you choose to sell later, is there a market for it? Too many people think real estate always escalates in value. It doesn’t. Some people lose everything with poor real estate investments.
You’ll never be like Allen Iverson. That’s both good and bad. Bad because you won’t earn millions. But good because you won’t lose millions.
If you have a steady job and some financial sense, be thankful. You can avoid the financial misfortune that too often befalls celebrities earning many times your salary.
How much you earn doesn’t determine your financial wellbeing. Your judgment in spending and investing does. Be smart with your money, and you’ll be comfortable your entire life.
Photo by Keith Allison via Creative Commons 2.0.