How To Avoid Joining The Long List Of Financial Failures

Bankruptcy

We have all seen examples of financial failures. For some it comes down to unavoidale factors; bad luck, poor timing or a poor economy. The concept of bankruptcy – seeking legal relief for one’s debts, whether personal or in business – dates back at least to the 1500s if not earlier. The term comes from the Italian “banca rotta,” or “broken bench” – perhaps a reference to a 16th-century custom of literally breaking the bench on which a person of importance sat to signify his disgrace.

If there is any solace for those who have been forced to file for bankruptcy, it might be in the fact that they have plenty of famous company. Over the decades, many celebrated writers, actors, musicians, sports figures, and more have been forced by circumstance to go bankrupt. In most cases, they made huge amounts of money during the heights of their careers but spent even greater amounts, or else made bad investments.

Riches To Rags

It has forever fascinated me that some of the most successful people have managed to find a way to lose all of their wealth. I guess I have to be open to the fact that success is subjective. When I say ‘successful people’ I am not really quite sure what that means. 

We may start with the premise that financial riches alone do not necessarily bring happiness or equate to success.  We can then start to understand why we shouldn’t assume that all of those who acquire wealth are equipped to keep it. The same applies to people who have suddenly become rich without any prior success such as some lottery winners.

Life Is A Lottery

Research indicates that the majority of people who purchase lottery tickets come from low-income households. Hence, there is a probability that lottery winners have little experience with managing large amounts of money. This helps to explain why for some people, keeping their newfound bonanza can prove to be difficult. 

Those in low-income groups live in communities of friends and family who also have limited financial resources. Hence, we might also conclude that much of the winnings might end up being distributed to many. 

The odds of winning lotteries such as ‘Powerball’ or ‘Mega Millions’ are slim — but the odds of your life devolving into chaos if you somehow pull it off are actually quite good.

Most lottery dreams share a few common themes: yachts and lobster tails, big tips, fast cars, the fast life and a mansion for mum. In reality, instant entry to the rich class has a way of wrecking friendships, destroying marriages, ending in bankruptcy or worse.

Winning the lottery might seem like a dream come true, but mountains of unearned money are irresistible to greedy and resentful friends and relatives. Add in con artists and charity cases, who scurry out of the woodwork to grab as much of it as they can. In other cases, it’s the lottery winners themselves who can’t get out of their own way — reckless spending, giving, partying and gambling leave some worse off than they started. 

A Sad Lottery Winner Story

Five years after David Lee Edwards from Kentucky, USA won a $27 million jackpot, he was penniless. He was living in a storage shed with his wife. The couple squandered their fortune on the typical goodies that sink so many lucky winners. They bought dozens of high-end cars, mansions and a plane.

They blew through $3 million in the first three months. By the end of the first year, $12 million was in the wind. By 2006, the couple had spiralled into drug addiction. Just 12 years after the win changed the course of his life, David Lee Edwards died alone and broke in hospice care at the age of 58.

This story is surprisingly not uncommon.

The Celebrity Lifestyle

Likewise, athletes, pop stars, actors and other celebrities may gain wealth very quickly without being sufficiently equipped to know what to do with it. Some may be exploited by others who seek to cash in or offer less than appropriate financial advice.

There are also examples of very wealthy celebrities who live an extravagant lifestyle of crazy spending on things that bring no future income. When the income suddenly stops flowing they quickly realise the difference between income and wealth. 

A calm head and good advice diligently followed could have saved so many from following the ‘riches to rags’ scenario. Simply recalling financial literacy lessons taught at school (if they ever were) might also have helped to bring about better outcomes.

Just A Few Examples To Not Follow

There are so many examples of people who have unfortunately lost huge amounts of wealth for various reasons, mostly related to bad decisions that could have easily been avoided. In many cases, the outcome despite massive incomes or sudden wealth accumulation actually ends up in huge amounts of debt as people try to maintain extravagant lifestyles.

Mickey Rooney

Profession: Actor
Known as: One of MGM’s biggest stars in the 1930s and 1940s and one of Hollywood’s most prolific performers

Rooney enjoyed a career that spanned 88 years, from his appearance as a child actor in silent films to a role in a 2017 version of “Dr. Jekyll and Mr. Hyde.” However, his career was derailed by personal demons, including addiction to drugs and alcohol and a gambling compulsion. This led to him amassing $3 million in debt, and he was forced to declare bankruptcy in 1962. Although he made a comeback in the 1980s, financial problems plagued him for the rest of his life.

Aaron Carter

Profession: Singer
Known as: Child singing star and younger brother of Nick Carter (Backstreet Boys)

After making his performing debut at the age of seven, Carter found success as a teen pop singer, though he never equalled his more famous brother’s accomplishments. He filed for bankruptcy in 2013 with a reported $3.5 million in debts (including a $30,000 credit card bill) and died in 2022 at the age of 34.

Boris Becker

Profession: Tennis player
Known as: Six-time Grand Slam champion; tennis icon

This one-time tennis champ was once estimated to have a net worth of more than $130 million. However, Becker filed for bankruptcy in 2017 after owing $4.1 million to the private British bank Arbuthnot Latham. To make matters worse, last year he was later charged with failing to surrender various assets in partial repayment of his debts. He was sentenced to 30 months in prison in England. He was released after serving eight months and deported to his native Germany.

Mike Tyson

Profession: Boxer
Known as: The youngest boxer ever to win a heavyweight title

At one point in his career, Tyson was the undisputed world heavyweight champion. The young boxer made some very lavish purchases with his earnings, including a $2 million bathtub, 110 luxury cars, and three white Bengal tigers priced at $70,000 each. His debt soared to $31.6 million, and he was forced to file for bankruptcy in 2003.

50 Cent

Profession: Rapper
Known as: Performer of four No. 1 hits

Curtis James Jackson III, known professionally as 50 Cent, filed for bankruptcy in 2015, listing debts of over $32 million. Failed business deals and Jackson’s extravagant lifestyle (he reportedly spent $5,000 a month on gardening on his estate).

Lil’ Kim

Profession: Rapper
Known as: Performer of “Hard Core,” her debut album, which went double platinum

Lil’ Kim, born Kimberly Denise Jones, made good money as a rap star but spent more than she brought in, including $10,000 a month on travel. She filed for bankruptcy in 2018 in an attempt to not lose her New Jersey mansion. At the time, she reported $2.57 million in assets and $4.08 million in liabilities. Appearances on the reality series “Girls Cruise” helped get her out of debt.

Why Does It Happen?

I’ve learned that there are many factors that make it hard for people to hold onto their money or build wealth. This list represents a really useful list of lessons and things to avoid. Read them carefully and see if any of them have any chance of applying to you.

1. Pretender Syndrome

– Ego-driven purchases intended to create the perception to others that you are doing better financially than you actually are.

2. Procrastination

– Believing you have plenty of time left to get serious about saving money.  

3. Smarter Than Everyone Else

– This is one of the reasons why many people do not hire experts, seek feedback from experts or why they took uneducated Risks (taking risks without doing your homework).

4. Emotional Spending

– Spending decisions that you make when you are in an emotional state, are always going to be bad spending decisions.

5. Overthinking

– Simple solutions are usually the correct solutions. Seeking more complicated solutions leads to procrastination and delay.

6. Fear

– Making money decisions out of fear. An example would be liquidating investments during a downturn in the stock market.

7. Impairment Spending

– Spending money or making spending decisions while impaired by drugs or alcohol.

8. Desperate Decisions

– These are decisions that you make from a position of weakness. They are typically the result of prior bad decisions and are almost always forced upon you by some third party, such as a lender, credit card company, employer, spouse, family or friends.

9. Impulse Spending

– Making spur-of-the-moment purchases. This could be emotion-based or due to decision fatigue.

10. Peer Pressure Spending

– This is where you try to mirror the lifestyles of neighbours, friends or family.

11. Rescue Spending

– When those inside your inner circle struggle financially, your inner circle will almost always suffer from spouse, family, friends, work colleagues, etc.

12. Impatience

– Making poor money decisions, such as liquidating investments during a downturn in the market can be fear-based or driven by a lack of patience. Making any major purchase without wanting to spend the time doing your homework, is another example.

Conclusions 

Managing money isn’t easy. Education up to high school graduation rarely focuses on this essential life skill. Often, what one gathers is from parents, siblings and friends who may have unknowingly committed mistakes in their financial decisions. Moreover, easy credit, mixed voices, conflicting advice on finance from various sources and financial jargon prove to be the other challenges. It is easy to commit financial mistakes, especially when one has so many things to juggle around and distract us.

So what is the lesson? Well, the chances of any of us achieving the type of wealth mentioned above are extremely rare. But we may receive smaller windfalls from sources such as inheritances, a successful book deal, annual bonuses or gratuities, redundancy payouts or retirement plans.

As with most things, just a little bit of education and good advice along with commonsense and looking at the bigger picture and the slightly longer-term plan can save tens of thousands or even more. No matter what the situation, a disciplined plan that involves saving and simple, safe and low-risk investing can remove the horrible risk of losing it all. 

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