Lessons from celebrity financial mistakes

When “Game of Thrones” actress Lena Headey got divorced, she had less than $5 in her bank account and had to rely on credit cards to support herself and her young son, she said in court filings that were obtained by TMZ and E! News. Given that she’s a top-tier actress starring in a hit show, the news, when it came out in 2013, was surprising. The rest of the details revealed in court suggested even deeper financial problems: She said that while she was married to her husband, they used debt to pay for their living expenses.

Her story brings to mind other recent celebrity brushes with financial trouble: “American Idol” runner-up Justin Guarini has talked about his own tough times and the challenge of supporting his family after fading from the limelight. Toni Braxton has filed for bankruptcy twice (although TMZ also reported that she moved into a $3 million home last year). And Britney Spears’ father famously took over management of his daughter’s fortunes after she seemed unable to manage them on her own.

Why do celebrities make such terrible financial decisions — and most importantly, what can we learn from them? The short answer is that they make bad choices because they are just like us. Just because they’re famous doesn’t mean they know everything. In fact, celebrities often face extra money challenges because their income comes in spurts and is not steady or guaranteed. That makes it even more important to save for a rainy day and use financial tools such as insurance and savings accounts.

Here are a handful of money tips, inspired by celebrity drama, that apply to non-celebs, too:

1. Plan for taxes.

Tax laws are confusing and they are constantly revised and updated as a result of expiration dates and new laws. Whether you “forget” to pay taxes or are just unclear on how much you owe, you’ll want to be sure to consult a professional and get sorted out before April 15. As a cautionary tale, consider actor Wesley Snipes, who spent time in prison from 2010 to 2013 for tax evasion. He’s hardly the only celebrity to be accused of failing to pay Uncle Sam; actress and Academy Award winner Marlee Matlin made headlines several years ago for the same reason. At the time, she said she was working with the IRS to pay the $50,000 she owed.

2. Know what you’re signing.

If only Teresa Giudice, the Real Housewife of New Jersey currently serving time, had read the fine print of what she was signing a bit more carefully, she might still be starring on her reality TV show instead of living in a Connecticut prison. Her charges include submitting false loan applications for mortgages. In media interviews, she said she was simply signing the documents her husband put in front of her.

3. Get a prenup.

Some lawyers suggest that everyone, regardless of asset level, needs a prenup, and they make some valid arguments. It’s impossible to predict the path of your finances or relationship, and laying out how you will split your money in the event of a divorce can make that traumatic event a bit less stressful. Community property states, including Texas and California, typically divide up assets equally after a divorce, regardless of circumstances. If that’s not what you would want, then you’ll want to consider a prenup. Brad Pitt and Angelina Jolie, for example, reportedly signed a prenup that would let each person keep the wealth they brought into the marriage should they divorce. (Money earned during the marriage would be split up among their six children.)

4. Protect yourself people trying to take you down.

Whether you’re dating a potential gold digger or are surrounded by friends who are constantly asking for handouts, you’ll want to protect your money from those kinds of drains. Watch out for red flags such as dishonesty, secrecy around money matters and requests to co-sign a loan. Doing so can make you financially responsible for that loan and potentially ruin your credit history.

5. Resist temptation.

When you’re a celebrity, you might feel pressure to keep up with a certain Hollywood lifestyle that includes designer clothes, high-end facials and a mega-mansion. But the truth is, even non-celebrities are vulnerable to that kind of “keeping up with the Joneses” pressure thanks to social media. When you see a friend post about a vacation in Cabo or the new car he bought, it’s easy to want to make those purchases for yourself, regardless of whether or not they fit into your budget.

6. Prepare for income fluctuations.

Celebrities might face the most extreme form of this, since they typically go from project to project instead of working 9 to 5, but regular folks’ incomes can also go up and down with time, thanks to an unexpected layoff, break from the workforce to care for kids or retirement. You can plan for the leaner times by saving up an emergency fund to make sure you don’t have to rely on credit card debt to fill the gaps. That kind of preparation might have helped Headey avoid running out of cash after her divorce.

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Source Article from http://finance.yahoo.com/news/lessons-celebrity-financial-mistakes-141743746.html

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