5 Credit Lessons We Can Learn From the Mistakes of Athletes and Celebrities

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Category: Credit Cards
Posted on: 07/01/2021
the courtyard of a glamorous mansion with a pool, palm trees, and walls of windows opening into a luxurious home

Being rich and famous unfortunately doesn't come with financial integrity. For celebrities and revered athletes, fame and fortune can give the illusion of being invincible, as if they're above the law because of their bottomless pool of funds. Sure, celebrities and high-earning athletes can make their earnings last a lifetime—and then some—but only if they manage their money wisely.

But for many, the euphoric feeling of having it all quickly goes to their heads, and financial mistakes are made. Soon enough, that former endless pool of money has hit rock bottom. We can all learn a thing or two from the overly excited star athletes and A-list celebrities that have experienced face-palm-worthy money mismanagement.

1. Pay Your Taxes

The list of celebrities and pro athletes who skipped paying their taxes is disgracefully long. NFL pro-turned-occasional-actor Lawrence Taylor has had more than a few scuffles with tax laws. In 2000, he was sentenced to 90 days house arrest for filing a false tax return. Around this time, he confessed to not paying over $83,000 in taxes between 1991-1993 and filing another false tax return in 1990, where he avoided paying over $40,000 in taxes. Taylor wasn't the only pro athlete with a bad track record with the IRS. Mel Blount, Pete Rose, Mike Tyson, and OJ Simpson (among his less nefarious crimes) all committed tax fraud or owed mountains of money to the IRS at some point in their lives.

Movie stars, rappers, and pop culture icons have tried to get away with this crime, too. The rapper DMX was sentenced in 2018 for tax fraud for avoiding paying $1.7 million in taxes. Martha Stewart remains one of the most surprising cases, having been sentenced back in 2004 and forced to pay $220,000 in back taxes. In 2008, Blade actor Wesley Snipes was sentenced to a three-year prison sentence for failing to file his tax returns from 1999-2001.

The Takeaway: The rich and famous think they're sneaky when they're avoiding shelling out money for taxes, but in reality, their crimes always catch up to them. The price they pay is greater than the fines—it's serious prison time. Cheating the IRS is something that follows you for the rest of your life. Now, imagine if you didn't have the reputation and funds for an excellent lawyer to reduce the penalties?

2. Do You Need That Dinosaur Skull? Maintaining Your Wealth Takes Work

Being a celebrity or a pro athlete can fill your eyes with dollar signs. Soon, you're spending more money than you can make it. It's a tale as old as time, personified by one Nicolas Cage, who, alongside having to pay the $6.2 million tax lien filed by the IRS, also reportedly purchased two castles, a dinosaur skull, shrunken pygmy heads, a dozen mansions, and an entire island. Despite having a lengthy career with the National Treasure blockbusters under his belt, Cage is left to taking roles to work his way out of debt.

The Takeaway: Nicolas Cage is far from being the only actor with questionable purchases that have left him with an empty bank account. The important lesson to learn here is that no matter the size of your fortune, you can squander it if you're not careful. Treat yourself, absolutely, but be smart in your purchases because maintaining your wealth takes just as much effort as making it.

3. Know What You're Signing

It didn't matter that Real Housewife of New Jersey, Teresa Giudice, claimed she didn't know what those documents read. According to Giudice, she was simply signing forms her husband had placed in front of her. However, her signature was all the court needed to send her to prison for submitting false loan applications for mortgages.

The Takeaway: When it comes to financial documents like mortgage, credit card, or loan applications or forms, you absolutely want to read everything from the bold headings to the fine print. For Giudice, she was duped by trusting her husband into signing false documents. Still, the story runs the same for anyone signing up for sketchy terms from equally sketchy lenders: always read the details before cosigning onto a loan, and don't make any sort of move with their money or financial future without thoroughly ensuring its stability.

4. Be Careful Who You Lend To

Yes, it's a generous idea to lend money to a friend or loved one going through a tough time. Still, for a top earner like Days of Our Lives actress Deidre Hall, it becomes obvious fairly quickly that friends and family take advantage of your amassed fortune and good intentions. Hall lent some $800,000 to her wardrobe consultant and her family to get them through tough times, and she even drained some of the money from her pension plan. While the parties eventually reached a compromise, not all stories of money lending get an amicable ending—or an ending at all.

The Takeaway: You don't have to be a miser with your money. If you want to lend money to your friends and family, that's your prerogative, but go into these situations with the attitude that the money is actually a gift because chances are you won't be getting it back. If you do want to issue a loan to a friend, have everything in writing. This simple act of a written contract will save you from making detrimental mistakes with your money—and it could save your friendship, too.

5. Don't Buy a House You Can't Afford

Even for the wealthy, a house is still a big investment, especially when you start getting into the multi-million dollar mansion type of homes that celebrities with deep pockets tend to be attracted to. But if you're not careful and decide to purchase a house you can't afford, the mistake tends to linger on your record for years to come, affecting your ability to acquire loans, have a high FICO score, and your creditworthiness.

It happened to renowned actress Kristen Bell, whose 2.5-acre property went into foreclosure back in 2012 and was auctioned off for $500,000 less than she originally paid. It's more than a loss of money—the foreclosure will follow her around on her credit report for seven years, no matter how many Frozen movies she does.

The Takeaway: Hollywood actors get ahead of themselves. They hit it big, thinking they're set for life, but in reality, locking down roles and maintaining their wealth takes hard work and common sense. Don't buy more house (or things, for that matter) than you can afford. No matter how big of a superstar you are, your monthly payments shouldn't be more than 28% of your income. Committing to serious real estate investments and defaulting on your loan will be a stain on your credit report you won't be able to shake for at least seven years, even if you are the star in Disney's most beloved movies.

Money Management is Common Sense

Red carpet starlets, pro athletes, and Billboard songsters run into money issues so often because they get carried away, overwhelmed by the sheer numbers rolling in and a lack of financial guidance. The lessons we can learn from them boils down to common sense.

Financial aptitude is nothing more than practicing frugal and good-standing credit habits and setting achievable goals for yourself to plan for your future. When in doubt, simply look at these examples and do the opposite of these high-earners who lost it all.

Finance Guru

Finance Guru