Jason Kottke recently pointed to a Sports Illustrated article about LeBron James' new house, a house that features a movie theater, a bowling alley, a barber shop, a two-story walk-in closet, and a six-car garage.
James, with a large salary and lucrative endorsement deals, can probably afford this, but one wonders if it's not a foolish choice. History is filled with examples of wealthy people who have squandered their fortunes through poor money management. (Here's a long list of bankrupt celebrities.)
Some of the stupid things that rich people have done with their money include:
- MC Hammer — who has a blog! — sold the rights to his songs to raise money after being bankrupted by his lavish lifestyle. Hammer earned more than $33 million in the early nineties, but spent the money on a $12 million mansion (with gold-plated gates), a fleet of seventeen vehicles, two helicopters, and extravagant parties.
- Newspaper publisher William Randolph Hearst — the inspiration for Citizen Kane — built an enormous castle in California. The estate features 56 bedrooms, 41 fireplaces, 61 bathrooms, and 19 sitting rooms. The buildings total more than 90,000 square feet.
- Dennis Kozlowski, former CEO of Tyco, received widespread attention for his decadent lifestyle, which he funded in part from the coffers of the company he ran. For his wife's 40th birthday, Kozlowski staged an extravagant $2 million party on the Italian island of Sardinia. The party featured a ice-sculpture of the Statue of David that pissed vodka. He charged the company half the bill for this orgy.
- “Even billionaires need to budget,” begins this piece from the San Francisco Chronicle. The article describes the spending habits of Larry Ellison, founder of Oracle Corp. and one of the world's richest men. Though his debt never exceeds 10% of his net worth, his accountant worries that he spends too much.
- Imelda Marcos, former First Lady of the Philippines, had an extensive wardrobe: 15 mink coats, 65 parasols, 71 pairs of sunglasses, 508 gowns, 888 handbags, and over a thousand pairs of shoes.
- Michael Jackson may have earned a lot of money, but he spent a lot too! “He purchased ten artificial intelligence Sony AIBO dog robots at $5,000 each, and it takes over $200,000 a month just to maintain and run his home. The King of Pop dazzled the American populace when he shopped away $6 million within a matter of hours on the TV documentary Living with Michael Jackson.”
- Actress Kim Basinger paid $20 million to buy the town of Braselton, Georgia in 1989. When Basinger filed for bankruptcy just four years later, she was forced to sell the town.
- While Swaziland prepared for famine and suffered from an AIDS/HIV epidemic, the country's king spent $45 million (US) of state funds to purchase a private jet.
- Wolfgang Amadeus Mozart was deep in debt when he died at 35. He was buried in an unmarked pauper's grave.
- Boxer Mike Tyson earned over $300 million in his professional career. He lost it all, spending the money on cars, jewels, and more. He eventually filed for bankruptcy. (More here.)
- Actor Burt Reynolds filed for bankruptcy in 1996 with more than $8 million in debt.
- Author Mark Twain “made a substantial amount of money through his writing, but he squandered much of it in bad investments, mostly in new inventions. These included a bed clamp for infants, a new type of steam engine, and the kaolatype (or collotype: a machine designed to engrave printing plates).” Twain was a sucker for get rich quick schemes.
- Even the rich need to save for the future. “Over a 20-month period between 1996 and 1997 Elton John spent $205,774 on flowers alone — and that's just a smidgen of his spending. In 1999, the BBC reported that John asked a merchant bank to help him borrow $40 million to pay off his debts. A year later he admitted running up debts more than $2 million a month. His spending sprees were reported to include purchases of classic cars, clothing and jewelry… ‘I'm not a nest-egg person,' said John when defense lawyers questioned his spending habits. ‘I'm a single man. I like spending my money.'“
- Soccer star George Best went bankrupt in 1982. How'd he lose his money? “I spent a lot of money on booze, birds, and fast cars. The rest I just squandered.”
- On the night of 01 February 1976, Elvis Presley decided he wanted a Fool's Gold Loaf, a special sandwich made of hollowed bread, a jar of peanut butter, a jar of jelly, and a pound of bacon. He and an entourage flew from Memphis to Denver. The group ate their sandwiches and then flew home. Price: $50,000 – $60,000.
When people make a lot of money, they're able to spend a lot of money. The problem isn't a single extravagant purchase, but a lavish lifestyle in which they spend more than they earn. Even the rich are subject to the fundamental law of wealth. Real wealth isn't about earning money — it's about keeping money.
There are also countless stories of average people who make it big through the lottery (or other windfall), and then squander their wealth in years or months. These people often come from backgrounds that provide no training for handling large fortunes. (Last fall, I wrote about tips for managing a windfall successfully.)
It's sad to think that a lot of these problems might have been alleviated with some basic financial literacy. During the next few weeks, Get Rich Slowly will focus on personal finance fundamentals, the skills necessary to prevent you from blowing your fortune should you happen to make it big as a boxer, a rapper, or, more likely, a blogger. These are the very same skills that you need in order to accumulate wealth as an Average Joe at an average job.
Author: J.D. Roth
In 2006, J.D. founded Get Rich Slowly to document his quest to get out of debt. Over time, he learned how to save and how to invest. Today, he's managed to reach early retirement! He wants to help you master your money — and your life. No scams. No gimmicks. Just smart money advice to help you reach your goals.