Personal Finance Advice for Celebrities

Some of us only read the celebrity-watch magazines at the hairdresser’s – but you still read them right? Whether you buy the magazines, borrow them or just read them in line at the supermarket, whether you subscribe to an email newsletter or trawl the gossip websites you’ve always got one eye on the celebrities, and it’s a good thing too.

After all, what is the point in watching their lives with such interest, empathy and dedication if we can’t offer advice? It’s time for the celebrities to listen up because we’ve all been watching and we see how you manage your lifestyles and mismanage your finances and we can do it better. So, following is impartial, unemotional, outsider advice for celebrities on their personal finances, plus we could all do with a reminder of these principles as well.

1 – Calculate your net worth.

Your net worth is the measure of whether you are truly wealthy and is a calculation of what you own, minus what you owe. Celebrities with big houses, big cars and big plastic surgery bills may appear wealthy because they seem to ‘have it all’ but in reality all they have is a lot of debt. As a result, many celebrities need a reality check of their finances and that can be done by calculating what your net worth is, and what it should be.

Knowing what your net worth should be:

• Add up your pre-tax annual income from all sources including wages and investment in a full year, before tax.
• Multiply your pre-tax annual income by your age.
• Divide the answer by 10.

Knowing what your net worth really is:

• Add up all of your assets including your house, car and any investments.
• Deduct all of your liabilities including your mortgage, your car loans, personal loans, student loans and credit card debt.
• The resulting figure is your net worth to date.

2 – Cut out the bad habits.

Celebrities are only human, and we all have our vices, however, when you’re famous it is much easier to be carried away on a bad habit due to the stress, the pressure and the temptation. At the same time, you don’t have to cut all the fun out of your life, an indulgence only becomes a bad habit when it interrupts your day to day life so when celebrities are putting cartons of cigarettes on credit or missing work because they’re hung over or in a drug rehab centre then their habits have become bad habits, and expensive habits which need to be broken for their own health, and the health of their finances.

3 – Make donations.

Getting caught for tax evasion is not worth the trouble or the publicity, especially since celebrities could make donations to charities or organisations which are tax deductible. Also, don’t forget that a donation to a charity can show the people that you[re not afraid to give back to the fans and the community, and you remember where you came from.

4 – Control your debt.

Check the names on credit card and loan accounts because if your partner, spouse, children or parents die, their debts could come to you and managing someone else’s debts can be even harder than managing your own.

At the same time, you don’t want to leave your family in debt if you die because the spotlight of being a famous partner/spouse/child will only hold them up for so long. Instead, take control of your debts and find ways to manage and repay your obligations as soon as possible, whether you refinance or negotiate with your lender for a lower interest rate or repayment amount to make your debts more manageable, or a higher repayment amount over a shorter loan term to clear your debts sooner.

5 – Stop overspending.

Of course debts come from overspending, and spending without a budget, or a plan for the future. As a celebrity there is a certain lifestyle to live and image to maintain and so it is even easier to keep spending to furnish a new house in time for a magazine shoot or who could forget an extravagant celebrity wedding.

Therefore, celebrities need to make sure they plan for the future in the same way the rest of us do because they may not be gorgeous and coveted forever – how many actors coming through the ranks today are likely to have the long term appeal to be the next Sean Connery?

Instead, celebrities need a savings plan to plan for the future. This includes a plan for how their bad debts will be repaid as quickly as possible, how much of their income can be put away in savings, and how they are going to generate income in retirement, either through investments, or a significant pool of savings.

However, when your income is unpredictable from one month to the next as is the case with many celebrities, it can be hard to stick to a budget or a savings plan, but it’s not impossible. Instead of setting aside a certain amount each month to savings as you do, a celebrity saver may set aside a certain percentage from each pay check to a savings or investment fund.

With an often unpredictable income a celebrity can also benefit from an emergency fund with enough funds to cover their expenses for three to six months (depending on whether they are A-list or D-list) if new work doesn’t come up. This is another reason debt is a bad idea for celebrities as it is easy to spend on a credit card or line of credit expecting income to cover the repayments, which never comes, or comes too late to avoid excessive interest charges.

Then, with all necessary bills paid, a savings, investment and emergency allocation in place, the remainder of their income can be enjoyed.

6 – Get good advice.

As a celebrity there will be plenty of people just waiting to take advantage of you, and before you hand over control of your accounts or pay for expensive financial advice, consider who is offering the advice, and learn more about their experience and their track record. With such large sums of money passing through your hands and all the temptations open to celebrities, it makes good financial sense to have a good financial advisor, just make sure the advice really is good.

Even your family can take advantage of your wealth either intentionally, or accidentally because they have little understanding of the vast sums of money either; just look at poor little Gary Coleman whose parents misappropriated his childhood earnings.

This has been a guest post from Alban, a personal finance writer at Home Loan Finder.