Nearly every week, it seems there's a new story about a celebrity running into money trouble.
A recent example, Gary Dourdan -- the actor who formerly starred as a detective on "CSI" -- filed for bankruptcy in August. Dourdan claimed almost $15,000 a month in earnings but only $321 in disposable income after paying bills and other obligations.
What is it about being a celebrity that seems to lend itself to financial woes? Here are a few of the biggest reasons that celebrities can't seem to handle their money -- and what we common folk can learn from them.
1. Ongoing extravagances
The careers that celebrities usually have aren't like those most ordinary people experience. Rather than earning a stable paycheck you can count on month in and month out, jobs in acting, music, and professional sports have wide swings in earnings both on a month-to-month basis and throughout a career. As a result, many celebrities make the mistake of thinking that their top-earning years will continue indefinitely, and they spend money as if they'll be able to sustain that high income long enough to pay down the massive financial obligations they take on. When careers end or popularity wanes, celebrities suddenly find themselves in way over their heads.
The lesson here is to be realistic about your career earnings potential. If you have a windfall year, don't make changes that will boost your cost of living permanently. Instead, recognize that it may be a one-time event and keep living below your means.
2. Expensive entourages
Being a celebrity comes with expenses that most people don't have to consider. Between security and bodyguards, pricey agents, and countless professionals ranging from accountants and financial advisors to lawyers and publicity staff, celebrities can go through million-dollar paychecks a lot faster than you'd think possible. Sometimes, the professionals whom celebrities hire turn out to be disreputable. But even honest advisors are costly, and when you add up all their bills, they can take a huge bite out of even substantial incomes.
You may never need a bodyguard, but watching expenses is still smart. For instance, if you've ever considered trying to boost your income by doing things like starting your own business, be sure to take into account the added costs of getting the help you need. Otherwise, you could end up digging yourself a deep hole before you ever get started with your new venture.
3. Bad planning
When money's coming in hand over fist, it's tempting just to let financial issues sort themselves out. But more often than not, celebrities looking back on their past mistakes can point to a lack of planning as the primary one.
While buying a home for mom is a generous act after signing that first big contract, even kinder -- and smarter -- is putting money aside to help cover the costs of her medical bills years down the road. But thinking well into the future is something that often eludes those living it up in the moment. Celebrity or not, it's often big-ticket expenses -- medical emergencies, home or car repair bills, for example -- that can send one's finances into a tailspin. Don't ignore potential (and expected) money sinkholes: Track and tweak your current spending and set aside funds for short-, mid-, and long-term needs.
4. Uncle Sam's grabby hands
One of the toughest things for celebrities to get a handle on is their tax liability. With many celebrities working across the nation if not the world, the complexity of state, federal, and international tax obligations can be overwhelming. You know how hard it is to manage a single federal and state tax return. Now, imagine how tough it would be to deal with dozens of different states, each having its own forms and rules to figure out.
Celebrities often have the flexibility of living where they want, giving them some tax planning opportunities that you may not have. But by paying attention to chances to reap tax savings while staying out of costly tax traps, you can ensure that you'll keep as much of your take-home pay as you possibly can.
Celebrities aren't the only ones who get into money trouble; many people have the same difficulty keeping their spending in check and living within their means. By being aware of the reasons that even celebrities have trouble hanging on to their money, you can put yourself in a better position to stay solvent even in tough times.
Broke Stars: 11 Celebrities Who Went Bankrupt
Why So Many Stars Have Money Trouble (and What You Can Learn From Them)
After getting his start on the stage, Sherman Hemsley moved to television in the role of George Jefferson on All in the Family and its spin-off, The Jeffersons. Despite the enormous success of the latter, which ran for 11 seasons on CBS -- and the fact that he continued to work steadily on television after The Jeffersons ended -- Hemsley filed for Chapter 13 in June 1999, saying he lacked sufficient funds to pay back a $1 million loan from a Las Vegas investment corporation, as well taxes owed to the IRS. Hemsley later withdrew the case and resolved his debts out of court.
In 1989, the actress and former model was persuaded by family members to buy a small town in Georgia called Braselton for $20 million, in partnership with the Ameritech Pension Fund. The idea was to turn the town into a tourist attraction featuring movie studios and a film festival, but Basinger found herself being sued for breach of contract after withdrawing from a film called Boxing Helena. Unable to pay the resulting $8.1 million in damages, she filed for bankruptcy in 1993 and two years later sold her stake in Braselton to Ameritech.
Basinger’s fortunes soon turned around, however. A higher court overturned the judgment against her, and she settled with the studio for $3.8 million. In 1997, she attained the pinnacle of Hollywood artistic recognition, winning an Academy Award for her performance as a Veronica Lake-lookalike call girl in L.A. Confidential.
In 1992, Mr. Las Vegas filed for Chapter 11, despite having been a working entertainer since high school. (His first television appearance was at age 19, on The Jackie Gleason Show.) Newton was forced into bankruptcy because of approximately $20 million of debts he incurred in the course of suing NBC for libel; the network news had reported that “organized crime was involved in his purchase of a hotel casino.”
By 1999, Newton was back in the black, but his financial issues continued. In 2005, the IRS sued him for more than $1.8 million in back taxes and penalties. In 2009, officials at a Michigan airport claimed that Newton owed more than $60,000 in unpaid storage fees after abandoning a plane there more than three years previously. Newton later had the plane disassembled and shipped to his Vegas estate, Casa de Shenandoah, where he kept it in the yard.
Heavy metal frontman, frequent drunk driver, bereaved father, and serial entrepreneur: Vince Neil Wharton has worn many hats, including that of the insolvent debtor -- twice. In 2010, the Mötley Crüe singer’s bankruptcy lawyer sued him, after five years in court, for unpaid legal bills, saying Neil owed him $16,000. So not only did Neil manage to lose all his money twice, he also failed to find a way to pay the man charged with saving his bacon.
The former undisputed heavyweight champion of the world filed for Chapter 11 in August 2003, after having received nearly $300 million in ring earnings. Tyson “spent extravagantly on mansions, Bentley cars, jewellery, and even pet Bengal tigers while buying gifts for his lavish entourage,” the BBC reported at the time.
In May 2010, Tyson told the hosts of the The View, “I’m totally destitute and broke. But I have an awesome life, I have an awesome wife who cares about me… I had a lot of fun. It [losing all his money] just happened. I’m very grateful. I don’t deserve to have the wife I have, I don’t deserve to have the kids I have, but I do, and I’m very grateful.”
Alec’s brother, an actor like all the Baldwin boys, filed for Chapter 11 in July 2009, after defaulting on his mortgage loan -- this after starring roles in such notable releases as The Usual Suspects (1995) and The Flintstones in Viva Rock Vegas (2000). Baldwin said he had debts of more than $2.3 million. It was also reported that Baldwin owed money on another mortgage, and possibly tens of thousands of dollars in unpaid state and federal property taxes.
These days, Baldwin is better known for versions of his own persona -- Evangelical Christian, outspoken conservative, reality television contestant -- than his thespian roles. He is currently suing Kevin Costner "for $3.8 million over a tiff involving oil-separating technology that the Waterworld actor pushed to help solve the BP oil spill in the Gulf of Mexico," EW reports. Costner's lawyers filed a motion to dismiss on Feb. 1.
Stanley Kirk Burrell made a fortune informing the world that “U Can’t Touch This,” eventually selling more than 50 million records globally. But he wasn’t as committed to self-restraint: In 1996 Hammer filed for Chapter 11, telling a California bankruptcy court he was $13.7 million in debt and had assets of only $9.6 million. Among the debts was a $110,000 sum owed to an interior decorator whose business failed because of Hammer’s nonpayment. The rapper went on to become a minister.
In the 1980s, Canseco was one-half of the Oakland Athletics’ Bash Brothers, the one-two home-run-hitting machine he formed with teammate Mark McGwire. In 1988, Canseco became the first player in major league history to hit at least 40 home runs and steal at least 40 bases in the same season; that same year, he was named the American League’s Most Valuable Player. But injuries slowed him down. After several spasmodic comebacks -- the most successful of which, in 1998, was completely overshadowed by McGwire’s home run duel with Sammy Sosa -- Canseco retired in 2002. The Los Angeles Dodgers declined to offer him a spot in 2004, after a spring tryout.
As a career, it was a curious blend of triumph and disappointment. But it turned out to be the prelude to a lurid retirement that included repeated runs-in with the law and two enormously expensive divorces. In 2005, Canseco made headlines with a bestselling book called Juiced: Wild Times, Rampant ’Roids, Smash Hits and How Baseball Got Big, in which he confessed to using anabolic steroids and outed several former players as fellow juicers -- among them, McGwire. In 2008, Canseco walked away from his $2.5 million, 7,300-square-foot mansion in Encino, Calif., which went into foreclosure. Not quite a bankruptcy, but still an impressive financial failure for such a formerly powerful earner.
1993’s Playmate of the Year parlayed her Playboy success into modeling work for Guess jeans (replacing supermodel Claudia Schiffer) and a brief film career (including a role in the final Naked Gun movie). Previously, Smith had worked at Walmart, Red Lobster, and as a stripper.
But it was probably her second marriage, to octogenarian oil mogul J. Howard Marshall, that brought Smith the most notoriety, if not the most money: After taking a serpentine path through the courts, Smith’s inheritance case -- which continued after her death in the name of her young daughter, Dannielynn Birkhead -- was ultimately settled by the Supreme Court. The justices ruled against Smith’s estate.
Smith’s rendezvous with bankruptcy came in 1996, after she lost a default judgment in a $830,00 sexual harassment suit brought two years earlier by her former nanny. The case was settled.
To be fair, Disney went broke at the tender age of 21 -- unlike the others on this list, before he got rich. He had founded a company called Laugh-O-Gram, an early attempt at an animation studio, which set out to make a film version of Lewis Carroll’s Alice in Wonderland. The production was plagued by difficulties, and a near-indigent Disney declared bankruptcy -- “though Walt said he could have technically avoided responsibility by claiming that he was a minor at the time of the company’s incorporation,” writes Neal Gabler in Walt Disney: The Triumph of the American Imagination.
“Most people filing for bankruptcy are disturbed or bitter,” said the attorney who handled Disney’s case. “Walt wasn’t.” Disney’s optimism and confidence were well justified: The next company he founded had total revenues of more than $38 billion last year.
Samuel Langhorne Clemens, the man who coined the phrase 'the Gilded Age,' was as bad as managing money as he was good at making it. A technology enthusiast, he lost most of his lucre (and much of his wife’s inheritance) investing in an automatic typesetting device called the Paige Compositor, which was rendered obsolete before it could be made to work properly.
Twain filed for bankruptcy in 1894 and was thereby relieved of his debts, but resolved to pay them back anyhow. He embarked on a lecture tour of Europe for the next four years, earning enough money to reimburse his former creditors. Twain went on to become much in demand as a public speaker.