Many of us have probably been guilty of thinking that a just a few extra hundred dollars in our paychecks would forever end financial problems. But that’s not always the case. Each time a famous/rich files bankruptcy, the rest of us wonder how they could possibly blow so much money. “If I had that much money…” we think. But with more money comes the tendency to spend more and perhaps the same problems as celebrities who file bankruptcy.
Former NFL player Warren Sapp is the latest famous person to file bankruptcy, owing more than $6.7 million. According to Washington Post, Sapp’s assets include close to $6,500 in Jordan shoes! That’s either a lot of shoes or a few pairs of very expensive shoes. Based solely on his income, he might have been able to afford it. But considering his debt, that’s far too many shoes.
Having a lot of money doesn’t mean you should make bad spending decisions. No matter how much money you have, the basic financial rules still apply. Know how much money you have and don’t overspend. Don’t spend your money before you earn it. Save money for a rainy day and especially for the years you’ll spend in retirement when you’ll no longer have an active income.
Pay your bills on time and never get behind because it’s too hard to get caught up again. If you’re deep in debt, you may have to scale back your lifestyle significantly if you want to get out of debt anytime soon. For example, no more shoes purchases unless your feet are still growing. Avoid taking on more debt when you’re already having a tough time paying the bills.
Washington Post cites a Sports Illustrated statistic that 78% of NFL players and 60% of NBA players file for bankruptcy within two years of their retirement. Yikes! These players probably have much more time to spend their money now that they’re no longer working. The lesson is to adjust your lifestyle to decreases in your income, especially after you leave your job whether expectedly or unexpectedly.
If you’re living off money you’ve saved, be able to figure out how long that money will last based on your current rate of spending or how much you can spend to have the money last a certain amount of time. For example, $1 million will last less than six years if you’re spending an average of $15,000 a month. It’s simple division: the amount of money you have saved divided by what you’re spending every month. Spend less to make your money last longer.
While it’s not always the most ideal solution, bankruptcy isn’t the end of the world. There are people who emerge from bankruptcy only to have more financial success than they did before filing bankruptcy. It isn’t just because they’ve shed their debt. It’s also because they realized their pre-bankruptcy mistakes and adjusted accordingly. Bankruptcy may be the fresh start you need or you may do better making good use of the money you already have.
Source: WashingtonPost.com
