High Profile, High Lifestyle - Avoid Becoming a Financial Train Wreck

Posted on August 14, 2011

Over the past two decades we have worked with some very successful professional athletes and entertainers. High profile individuals like these have such special acting, athletic, musical, or other abilities that people are willing to pay lots of money to see them perform. And, most importantly, these Brightworth clients are willing to receive and act upon sound financial advice. Without this type of advice, we’ve seen how people wreck their financial lives, and many times never recover.The biggest mistake often made by many in the spotlight is thinking that the large incomes they currently make will continue indefinitely. At some point things will change: your current contract is up and the team doesn’t want to renew it, music styles change and fans are not as loyal as before, new actors and actresses come along that replace those currently at the pinnacle of their profession.

The not so friendly truth is that time is generally not kind to most professional athletes and entertainers. Therefore, your unique gifts and talents must be managed financially so that you save a significant amount while you are earning it. When you boil it down, professional athletes and entertainers are like many other pre-retirees: You have a limited number of years to earn money and will then need to live off of your portfolio income at some point in the future.

With a disciplined approach, the future can be very bright. Without it, well, you have read the end of that story many times. Being financially disciplined can be difficult when you see so many others frivolously spending large amounts on multiple cars, houses or other luxuries. The key is to spend less (much less) than you make and to invest the rest wisely. Maintaining financial discipline to save money during peak earning years builds the foundation for discipline in the later spending years. Working in another profession after your peakperforming days are over is another way to continue to supplement your income after your primary professional retirement. With life expectancies now well into the 80-90 year-old range for many, thinking about what you will do for the next 40-50 years of your life is an important and worthwhile endeavor.

Not spending too much on houses, personal property, etc., is another key. A rule of thumb we have seen many clients utilize to their advantage is to not have more than 25 percent of their total net worth in non-investment assets. This allows for the majority of your net worth to be invested in stocks, bonds and alternative investments, which can grow to provide for your cash flow needs after your performing days are over. Not only do houses, cars, etc., not generally earn income, but they require outflow in the way of maintenance, property taxes, insurance, etc.

Another possible financial train wreck to avoid is entering into business ventures that family and friends want you to finance. We have seen many of these over the years and rarely do they turn out well. Celebrities tend to be more susceptible to being talked into unsuccessful business ventures, tax evasion schemes and large commission-based products than the average high net worth client. Headline risk can be damaging to your personal brand and financially costly. Keep family and friends separate from your business and financial relationships. For clients that allow us to be their filtering service, we have been able to help them save a lot of money, a lot of relational heartache, reputation and possibly criminal prosecution in certain situations.

Finally, hire an advisor from an independent and objective advisory firm, like Brightworth, who won’t try to sell you any products, and who will give you an unbiased opinion even if he or she knows you won’t
like it. The path to a successful future will require the same type of discipline financially that you displayed athletically or artistically to become successful in the first place. You will likely end up preserving significant capital by avoiding big mistakes. Receiving solid advice, coupled with you being prudent with your money can help you avoid becoming the next financial train wreck.