In 2007, Nicolas Cage outbid fellow actor Leonardo DiCaprio on a dinosaur skull, paying $276,000 for his prize. It was just a minor expense for Cage, who earns $20 million per film. He had spent a fortune over the previous decade or so, accumulating a dozen mansions, three castles and two islands in the Bahamas. He also owned 50 cars—including a half-million-dollar Lamborghini that had been owned by the Shah of Iran—and a collection of shrunken heads.
You know what came next: Cage’s supersized spending caught up with him and the IRS demanded more than $6 million in back taxes. Cage sued his business manager for mishandling his money and the manager counter-sued, saying Cage’s out-of-control spending caused the problems. Banks foreclosed on several of Cage’s mansions due to millions in unpaid mortgage debt and the actor had to sell his German castle.
Cage is just one of countless celebrities with big paycheques and even bigger financial headaches. Michael Jackson, Toni Braxton, Willie Nelson and Stephen Baldwin are just a few others who come to mind. You may think these multi-millionaire mishaps have nothing to do with your own life, but in fact, the stars struggle with the same financial issues as you and me. “Celebrities are no different from the man on street, except the figures are bigger,” says Frank Cochran of Celebrity Financial Planning, a U.K. firm that works with star clients. “People should learn from what these celebrities have done and be careful they don’t fall into the same traps.”
So what can we learn from the stars? The first lesson is never to boost your lifestyle to match your gross income. Cage, for one, didn’t take into account that his $20-million fee per movie was just half that amount after taxes.
Celebrities can also teach you the importance of choosing a financial adviser carefully. This is a lesson that troubadour Leonard Cohen learned the hard way: he was forced to go back on the road at age 70 after accusing his manager of siphoning close to $5 million from his accounts. Regular folks also need to take care in finding a financial adviser—and they should always pay close attention to what’s happening with their investments.
While some celebrities are smart with money over long careers—think Barbra Streisand or Eric Clapton—many more enjoy a No. 1 hit or a couple of stellar major league seasons before plummeting into obscurity and running out of cash. MC Hammer, for example, declared bankruptcy in 1996 after his lightweight style of rap fell out of favour. “The big lesson from celebrities is that success can be fleeting,” says Frank Griggs, publisher of the entertainment site OMGblog.com.
The situation isn’t much different for regular folks who receive a sudden windfall or a big promotion. “What you need to do right at the beginning is save money,” Cochran tells his celebrity and non-celebrity clients. “Put your money where it can beat inflation, and develop good habits. Don’t spend too much and you will never go wrong.”