Hollywood can be a lucrative place to achieve heights of financial success and wealth; if one is able to navigate the difficult path to the top earning spots in the industry. People spend years, sometimes an entire lifetime trying to “make it big.” And yet attaining fame and fortune is not the end of one’s troubles. With that level of achievement comes a significant amount of financial risk to one’s personal finances.
Big Earnings Do Not Equal a Lifetime of Financial Comfort
High tier individuals in entertainment can earn more money in a year than the average person makes in a lifetime. Yet, in a Forbes study of 165 talent agents and managers, more than nine out of ten interviewed claim a large percentage of their top tier clients have little or no understanding of wealth or how to handle that wealth for themselves.
As a result, a number of financial perils consistently trap, and occasionally ruin, a number of high-earning individuals. The media and the general public only care about the splashy, flashy tawdry spectacle of a former star down on their luck. That attention only addresses the symptoms of a disease, but never gets to the core cause that would enable a person to find a cure.
The Dangers of Lavish Spending
Many talented individuals make the mistake of buying into media depictions of how people with status in the entertainment industry “should” live and have little or no concept of how to keep themselves financially grounded. Often there is a perception that one should not only live their lives as if they are successful, but there is pressure to show that life to the world at large, most recently through the lens of social media.
Michael Jackson is just one of many celebrities who faced bankruptcy and financial ruin late in his career. The performer had zero self-control when it came to lavish spending. His Neverland Ranch and collection of oddities are a legendary lesson in the danger of excess and paved the road to his financial ruin.
Another behavior pattern that has led to lavish spending is a general negativity attached to money, referred to as “demonized wealth.” In this case, people from a lower income bracket are suddenly thrust into a position of high wealth, and feel that being wealthy is bad, dirty, or somehow embarrassing. This could be due to how they were raised, or gained from observing the behaviors of other wealthy individuals. Demonizing one’s wealth can lead to talent spending money as soon as they earn it, in an attempt to get rid of it, instead of letting it grow.
The Risks of Poor Investments
Many celebrities try to make smart money choices by investing in real estate, emerging companies or other investment vehicles. For every stunning success, like 50 Cent’s famous investment in Vitamin Water, there are countless stories of failed investments. While risk is part of any investment strategy, far too many celebrities over-extend themselves in pursuit of greater wealth.
Kim Basinger and Burt Reynolds, A-List movie stars at the height of their fame, ran into financial distress due to poor investments. In Basinger’s case, the actress invested in a town outside Atlanta, Georgia, intending to turn it into a tourist destination. Just five years later, on the brink of financial ruin, Basinger and the other investors sold the property at a significant loss. For Reynolds the damage of a series of costly divorces was exacerbated by a major investment in a failed restaurant chain.
In both cases, the celebrities where trying to be proactive about securing and growing their personal wealth. But poor advice and over-extending their finances led them to ruin.
Lack of Experienced Financial Guidance
New wealth in Hollywood comes with a wide variety of financial pitfalls and traps. Some celebrities do plan ahead and seek out financial advice early in their careers, but it can often fall severely short of the depth and breadth of options that are available to them. While many are wise enough to work with a “financial advisor” all too often that source of advice is not qualified for the role, or is downright criminally-minded.
R&B singer Toni Braxton placed her financial trust in her manager and his record label only to ultimately lose everything. It is a common story, where a celebrity places financial trust in someone who is either close to them (a friend or relative) or who is a scam artist disguised as a financial advisor. Those advisors then provide poor advice that seemingly enriches everyone else at the expense of the celebrities themselves.
How can Talent Avoid the Financial Pitfalls?
We’ll be discussing this in depth in the next installment of this series of articles, but the best thing high-earning talent can do is to find themselves a brilliant financial team to work with and for them. A top tier individual in entertainment should look at the management of their wealth the same way a mid-sized company would. The person earing the income is the CEO of their own business with their name as the brand. They then need a CFO and a team of experts that are the best in their specific fields of wealth management, diversified investing, and financial planning. Proper financial planning with a team can give someone a healthy, prosperous, and well-rounded financial lifestyle; while still enabling them to plan for the future and the security that comes with smart investment moves.