Celebrities. They're just like us!
I apologize. I couldn't help the cliche. But it's true.
They eat like us. They breathe like us. They sleep like us. And they're strapped for cash ... like us?
Wait a minute ...
We all know the housing bubble caught many people off guard, but the list of celebrities who've fallen afoul of real estate is downright pathetic. Take a look:
- Evander Holyfield is facing foreclosure on his 54,000-square-foot home after Washington Mutual (NYSE:WM) demanded repayment on a $10 million loan. On top of that, he's reportedly dodging $550,000 in loans used to landscape his pad.
- Michael Jackson nearly lost his Neverland Ranch after defaulting on a loan held by Fortress Investment Group (NYSE:FIG). Fortress later sold the $23.5 million loan to a private investment company, so the King of Pop kept his digs.
- Ed McMahon could lose his Beverly Hills mansion after falling $644,000 behind on mortgage payments. He's also some $750,000 in the red with American Express (NYSE:AXP).
- Jose Canseco walked away from his 7,300 square-foot home. "It didn't make financial sense for me to keep paying a mortgage on a home that was basically owned by someone else," he said.
- Latrell Sprewell had his Wisconsin home foreclosed and his 70-foot yacht repossessed after failing to make the monthly payments.
Now, should I point and laugh at the (seemingly) wealthy celebs who lost control of their finances? Given their expected fame, they're probably fair game. Instead, let's learn something from these investment slip-ups. How on earth does someone with wealth beyond what most of us can comprehend fall into such an embarrassing financial mess?
Psychology 101
It's all too easy to catch yourself saying, "If only I had $X, I'd be set." Dreaming of an affluent future is, after all, a huge part of what motivates us to find successful investments. Unfortunately, the "pleased but never satisfied" mentality can control your financial decisions.
Let's face it, if money and happiness were perfectly correlated, Bill Gates and Carlos Slim would be walking orbs of bliss. But they're not. It doesn't take long to become accustomed to making a certain amount of money and the lifestyle it can buy and to want more, more, more!
When you're always clamoring for the next big purchase, any drop in income could be the final financial straw -- no matter how many zeros are on your paycheck. That's why, despite earning millions, celebrities can be just as prone to financial blunders as mere mortals.
We're rich, we're rich!
But there's more. When times are good -- and for a lot of people, they were -- it's easy to assume the sunny days won't end. Take the housing boom, for example. When real estate shot higher year after year, even people with modest working incomes suddenly had expendable cash beyond what they were accustomed to.
With new cash comes new toys. Perhaps a splurge at Tiffany's (NYSE:TIF), maybe a bender at an MGM (NYSE:MGM) casino, whatever tickles your fancy. But that gimme gimme attitude can feed on itself until typical 9-to-5ers resemble something straight out of MTV Cribs. What good is a fancy house if there isn't a fancy car in the driveway? What good is a fancy car if your clothes don't match? What good are fancy clothes without a fancy watch? What good is a fancy watch without showing it off at fancy restaurants? It's a vicious cycle to which all too many people fall victim.
What do you do?
If your goal is to become rich, you'll never get there. You'll keep moving the goalpost after every checkpoint until, like the celebrities mentioned, you outstrip your wealth.
Berkshire Hathaway (NYSE:BRK-A) (NYSE:BRK-B) boss Warren Buffett lives in the same house he bought in 1958 for $31,500, and he does his own tax returns. Some scoff at Buffett's frugality, but think of the benefits that come along with being that conservative. There's no recession, no oil crisis, no subprime lending bust, no real estate downturn, and no career move that could cost Buffett even a sliver of his standard of living.
Turns out, celebrities are just like the rest of us. The argument that their wealth exempts them from financial mistakes is naive. A person considered extremely poor in America might look like King Tut in someone else's eyes. Wealth is relative -- behavior is universal.
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