Why Do Athletes and Celebrities Go Broke?
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Source: npr.org
We see it time and time again. Celebrities and athletes on top of the world, living a lavish lifestyle with countless riches at their disposal. But then, later down the road, a nightmare scenario plays out. Their fortune tapped out, prestige and respect diminished, only to be left picking up the pieces and trying to figure out where it all went wrong…
Of course this is a broad generalization, and not every high-profile celebrity and athlete endures this fate, but the numbers are alarming.
Sports Illustrated did a study a few years ago and found that by the time they have been retired for two years, 78% of former NFL players have gone bankrupt or are under financial stress due to joblessness or divorce. Additionally, within five years of retirement an estimated 60% of former NBA players are broke.
Almost every day it feels like a new celebrity is getting arrested, declaring bankruptcy, or in a child custody battle.
So why does this happen? Why do these people who are so full of talent and potential, and surrounded by loyal assistants and adoring fans, continue to squander their earnings and end up in a bind?
Personality Type
In order to reach the top level of any industry, an individual must possess a supreme amount of confidence and self motivation. It also involves a competitive nature, and desire to continue to be better than their peers. These traits are necessary to becoming a successful athlete or celebrity, but can be disastrous when it comes to handling money. This level of “invincibility” leads many to become broke, or make poor investments, because they feel that nothing can stand in their way.
Improper Skills
Being good at acting, sports, or music doesn’t make you good at everything. This often leads to bad business decisions. Many celebrities and athletes leave school early in order to focus on their careers, and are left with very little knowledge of personal finance.
Spending More Than They Earn
Of all the reasons why a significant number of athletes and celebrities go broke, none may be more instrumental than living above their means. You’ve heard it time and time again, the number one mantra to success in personal finance is “spend less than you earn.” It’s such a simple concept, yet such a CRUCIAL principle to implement into your daily life.
This often manifests itself in the form of huge mansions, multiple luxury vehicles, boats, jewelry, champagne, expensive nights out, and more. Often times these big purchases will come with high amounts of debt, with no regard for the long term impact. They become so accustomed to this particular lifestyle, that once their days in the spotlight are over they’re unable to scale back their spending level.
Keeping Up With the Persona
Once someone makes it big they are expected to spend money in order to match their new lifestyle. Big purchases, free handouts to family and friends, and various other splurges emerge. The reality is that athletes and celebrities have a very short window of peak earnings, and sometimes have unrealistic expectations of what those future earnings will be. This can be a result of overconfidence or ignorance. Anyone is susceptible to being reduced to irrelevance due to health and injury issues, poor performance, or simply a change in popularity. Yet even with all these red flags, celebrities and athletes often continue to live an inflated lifestyle even when they can no longer fund it.
Target on Their Backs
Stars that are in the public spotlight quickly become a prime target for fraud and theft. They’re also constantly being told about “the next best thing” and “can’t miss investment opportunities.” They are often being advised poorly, and trust the wrong people to handle too much financial responsibility. When they do invest, it is usually in risky endeavors without the proper information. There are countless examples of athletes and celebrities investing in failed startup companies, restaurants, entertainment venues, and more.
Final Thoughts
Overall, no one is immune to needing to practice proper money management skills. Seeing all the examples of celebrities and athletes blowing all of their money illustrates the fact that no one can outearn bad spending habits. Your wants will always exceed your needs. To combat this, it’s extremely important to choose wisely where you spend your money and be aware of where it’s going.
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