Nicholas Cage is broke. Depending on which side you believe, Cage brought about his own financial ruin with a spending spree that included two castles, 15 palatial homes, several yachts as well as a fleet of Rolls Royces. According to Cage, it was the fault of his business manager and his mismanagement that brought Cage to financial ruin. Nevertheless, he is broke.
While you may not be a Hollywood star; if you own assets, you need to be financially protected. The news is riddled with celebrities who have gone bankrupt; MC Hammer, Evander Holyfield, Willie Nelson, Hulk Hogan, the list goes on and on. How could someone who earns more than 99% of the general public declare bankruptcy? Let’s examine some financial no no’s and how to avoid financial trouble.
Being overly generous to friends and family.
It’s not bad to be generous with friends and family. However, spending money on items that will alter your lifestyle is a bad idea. While Elvis could afford to purchase every pink Cadillac that General Motors produces, those on a $50,000 per year salary cannot. If you are so inclined to “spread the wealth”, make sure you make it part of your budget. Breaking down your income and expenses will make it crystal clear how much you have to spend monthly.
Being served with papers and being informed you are party to a lawsuit may be one of the scariest moments in your life. If you own assets, you should sit down with a good tax attorney or accountant immediately. A good accountant will show you how to properly structure them. If you own income producing properties, you should consider incorporating them into an LLC. What would happen if there was a slip and fall within one of your properties? All of your unincorporated assets would potentially be at risk. Are you adequately insured in case of a car accident? Although unlikely, what would happen if you got into a car accident and killed two passengers in the other car? Are you adequately insured? Please consult with your insurance agent to make sure you have enough coverage.
You have been making a decent living, perhaps even six figures for several years. You’ve got a great apartment overlooking the water in the swankiest part of town. You’re driving around in your favorite Escalade when you receive a phone call on your new $1,000 cell phone. “We’re shutting down the office; we’re laying everyone off as of Friday”. Think this can’t happen? Ask those in the financial services industry. Bear Sterns had been in business for over 100 years. In a blink of an eye, the company was gone; a distant memory. You may have already experienced an event very similar to this. The current unemployment rate is currently at 10%. Most would argue that it is much higher, as those not eligible for unemployment benefits aren’t counted anymore. As evidenced by this crushing downturn, the good times don’t last forever. The roaring 20′s gave way to the Great Depression in the 1930′s.Those 20-30% annual gains in the real estate market have now given way to the biggest foreclosure disaster the world has seen in the last 30 years; some would say ever. If you learn one thing; anything can happen. Those who decided to bury their head in the sands and blindly buy houses with no money down or buy stock on margin have been financially buried; bankrupt with no way out. While an economic disaster may occur, how you react to the event is even more important.
According to CNN.com in 2009, an estimated 1.5 million Americans will declare bankruptcy. Many people may chalk it up to overspending or a lavish lifestyle, but a new study suggests that more than 60 percent of people who go bankrupt are actually caused by medical issues. As with car and homeowner’s insurance, having and maintaining health insurance is paramount. Should you become separated from your employer, you are eligible for COBRA benefits. Due to a new law, your employer must by 66% of the insurance premium for 8 months. Do not let your health insurance lapse.