Why Some Celebrities Lose Their Fortunes Easily

Kim Basinger, Burt Reynolds, Mike Tyson and Meat Loaf all have one thing in common: They earned a fortune during their career and still at one point had to file for bankruptcy. This anecdotic evidence is backed by statistics from various professional sports leagues. According to Sports Illustrate of the NBA players go broke 5 years after retirement (considering an average salary of about USD 5 million per year!) and 78% of former NFL players are bankrupt or under severe financial stress within two years of retirement. In Germany 25% of the professional soccer players have more debts than assets at the end of their careers, according to the Players Association.

Disturbingly high numbers. This begs the question as to why from the thousands who are able to amass a fortune during their active years such a high share is worse off at the end of their career than at the beginning.

The answer is threefold:

• Many celebrities and sports stars make their fortune when they are young and are very inexperienced in all matters related to finance. They start to spend big time before having a professional wealth management.

• A qualified and honest wealth manager is required to support them from day one. But many a time this role is taken on by family members, “friends” or other non-professional wealth managers, in some cases people who are out to make a fast buck.
  

• Careers in show business or sports are relatively insecure and cannot be planned in advance and can end abruptly by a change in public taste or by an injury. A serious planning for the “worst-case” scenario is often missing.
  

But no reason for schadenfreude for the ones who do not earn money as a movie or sports stars. Many ordinary investors make similar mistakes, only the consequences are not so well publicised. Everybody can learn from the lessons of the celebrity world and should ask themselves these questions:

• What is my level of knowledge in financial matters and how much time can I invest into wealth management? What kind of external support do I need? Can I do it myself, should I take external advice or outsource my wealth management completely?
  

• Do I have the right partner for the kind of wealth management I require? Have I talked to several wealth managers before making a decision and do I control his performance and costs frequently?
  

• Do I have a cash flow planning? Does it consider worst-case scenarios such as a job loss or a long period of depressed stock markets?
  

Taking these question seriously will not make you famous – but would certainly avoid bankruptcy.