4 things Mike Tyson can teach you about savings accounts
September 01, 2011
Mike Tyson was once heavyweight champion, and perhaps the most feared boxer in the sport's history. Within two decades of his prime, though, he was filing for bankruptcy.
Tyson is just one of many celebrities whose savings accounts didn't last once the cheering stopped. Here are four things you can learn from them.
- Your peak earning years won't last forever. Parade Magazine once ran a list of celebrity bankruptcies that reads like a 1980s A-list: Tyson, MC Hammer, Don Johnson, Burt Reynolds, Kim Basinger. These stars once earned a great deal of money, but they developed lifestyles that needed an extraordinary amount of income to maintain. Once their earnings started to fade, those lifestyles quickly involved mounting piles of debt.
- Wealth is what's in savings accounts, not outside them. Mansions are for beginners--Basinger once owned a whole town. Tyson's collection of toys included a custom Bentley and pet tigers. Those must have seemed like very showy ways of demonstrating their riches, but what these celebrities needed to learn was that once that money is spent on such extravagances, it doesn't represent wealth--it represents a reduction of wealth.
- Investment results may--and will--vary. Savings accounts once carried hefty interest rates. Investment portfolios once regularly produced double-digit returns. With rates on savings accounts now near zero, and investment returns often worse than zero, it's a different story these days. Like celebrities who thought they had earned enough to live on forever, anyone planning to live off their wealth needs to understand the importance of building in a cushion against adverse markets.
- The tax man doesn't care about your problems. Willie Nelson is an example of a celebrity who ran into trouble with the IRS. One problem with a variable income is that you will still have to pay taxes on this year's earnings, even if next year is a disaster.
Among the extravagances Tyson once had was a retractable glass roof on his home. It's a shame he didn't realize that wealth isn't built on the showy amenities a mansion has; it's built on a solid foundation of savings.
