Lessons to be learned from Celebrities’ Money Troubles
You often hear it said “more money, more problems”. That phrase rings true with many celebrities today. Celebrities are constantly in the public’s eye, and face criticism about how they act, what they wear and how they handle their money. While their extravagant lives can seem unrelatable for most of us, there are still many lessons we can learn from their personal and financial mistakes.
Floyd Mayweather is a professional boxer who has been in the spotlight lately due to his upcoming fight with Connor McGregor. Over his career he’s had a lot of success including fifteen world titles. With this success has come some very lucrative “pay days”. It was recently reported that he has found himself with a massive $22 million tax bill. While that figure may be hard to fathom for most of us, it’s just a piece of his recent earnings in a fight against Manny Pacquiao where he reportedly found himself with a $250 million pay day. He simply didn’t withhold enough of his earnings for taxes and the IRS is demanding the percentage the tax code requires.
What can we learn from this? While you hopefully won’t be $22 million in the whole to the tax man any time soon, Floyd’s unfortunate circumstance brings to light the importance of tax planning. We say it all the time at Northwest Financial, that tax preparation happens once a year but tax planning happens year round. If you’re a small business owner with a fluctuating paycheck, if you’re expecting an inheritance soon, or you’re selling a property, you’ll likely have to figure out how much to withhold for taxes. It’s not any fun to have surprises at the end of the year and that’s why tax planning is so critical.
Johnny Depp is one of the most famous actors in the world. When he’s not staggering around as Captain Jack Sparrow on the movie set, he lives quite the lavish lifestyle and it has come back to bite him. Johnny has reportedly squandered away $650 million on 14 homes, over 200 pieces of artwork and a 156 foot yacht. While most people aren’t worried about buying too much art or too many homes, Mr. Depp’s situation brings to light the importance of putting together a spending and income plan. At Northwest Financial, it’s our job to help our clients understand their expenses and make sure their portfolios are consistently able to cover those expenses.
After you have a tax plan and an income plan, you’re still missing one piece of the financial triangle. Prince, a musical legend who passed away last year, didn’t have an estate plan in place. His estate, after he passed, was worth an estimated $200 million. Unfortunately half of that, $100 million, was eaten away by federal and state estate taxes, much of which could have been avoided with proper planning. There are only four places for your money to go:
1) You’re going to use it
2) It will go to your heirs
3) It will go to charity
4) It will go to the government
Most people we meet with would like to take Uncle Sam off that list.
Making sure you have the right will or trust in place, doesn’t often make it to the top of people’s priority lists. That was true for Heath Ledger, Paul Walker and Phillip Seymour Hoffman who passed away prior to their 50th birthdays. Their estates were devastated by taxes and fees. It’s never too early to plan. We recommend seeking out an experienced estate planning attorney.
“More money, more problems” can be true for celebrities but it doesn’t have to be. With proper tax planning, income planning and estate planning, these celebrities could have found themselves with fewer financial headaches. The same is true for those getting close to, or who are already in retirement. The key is working with someone who can facilitate solutions in these critical areas of one’s financial life.