Financial Planning Mistakes made by Actors

In this episode, we discuss financial planning mistakes made by actors. We are looking at financial issues for people who have inconsistent high income. We discuss major issues and mistakes that are commonly made.

Here is the transcript for this episode:

 We’re gonna talk about actors
high-income earners with erratic
earnings this could apply to athletes
other performers and everyone’s gonna
have an individual situation but we just
wanted to talk about some general issues
and the the issues were looking at is
high earners not consistent earnings
maybe a lot of travel target of
potential lawsuits relationship issues
so how do they protect themselves what
are some things that they could do or
what are some with some advice yeah
definitely and I’m Jason found this is
Bill Holliday and we’re both financial
planners and financial advisors so we’re
just gonna give our kind of experience
perspective on some of these things and
maybe some advice on you know how to
deal with those issues if you are an
actor or athlete musician something
along those lines so yeah it should be a
fun one and everyone’s gonna have an
individual situation but just general
guidelines right so ya touched on it
already high income so you know that’s
something we’re obviously high net worth
individuals or high-income individuals
have got to look at a variety of
different things like taxes playing for
the future making sure that you know
when that income stops they’ve got
something coming in down the road so
yeah kind of a variety of things all
tied into being being a high earner yeah
for sure
so I guess one thing is having a plan so
everyone’s career is going to be
different maybe it’s predictable what
your future earnings are for a lot of
people it’s not going to be predictable
so don’t necessarily spend based on
current earnings if suddenly you came
into a good situation great it may not
last or it may be that it’s a pretty
defined shorter career with this higher
earnings so spend with a long term in
mind in a big issue with this is just
don’t commit to big payments so mortgage
and car the first things that come to
mind if you’re committing to a 30
year mortgage on high payments based on
your current earnings that could be a
situation or a problem in future years
and financially hurt your your overall
financial situation absolutely see that
where somebody you know all of a sudden
they start earning you know a hundred
times more than they were earning before
and so what do they do they’re buying a
house – buying a car they’re buying
multiple cars buying one for their mom
their dad you know trying to take care
of everybody thinking that that’s never
gonna end and you gotta have a plan in
place because at some point it probably
will so and then just kind of the fact
that in those types of situations income
is usually erratic you might have one
year where it’s you know ten times what
it was the previous year and then back
down back up so you know you really
don’t know what the trajectory of that
career is going to be like so kind of
having plans in place to to help
stabilize that as far as the spending
goes yeah and even with housing I was
thinking one piece is committing to that
mortgage but it’s also lawn maintenance
pool maintenance HOA fees utilities on a
large house it’s if you’re not sure what
your earnings are in five years you
don’t want to commit to too much of an
expense there that’s the autos and and
transportation and housing are your big
expenses so just be careful on those
fronts yeah
something else is traveling a lot so
it’s kind of counterintuitive but
usually the more you travel the higher
your housing costs are going to be
because you’re gonna have to have
somebody maintaining that property when
you’re not there so you know it might be
hiring out you know property manager you
know might be having more staff there
just to make sure everything’s running
when you’re not home security you’re
talking about a large property yeah so
so that’s something to consider as well
yeah I think another issue is keep a
prudent reserve so you don’t want to be
in a bind where you’re needing to borrow
money that’s not collateralized like
credit cards and high interest that can
spike rolling to a problem so keep a
reserve I guess this goes for any
self-employed person well anyone in
general but if you’re self-employed
without steady income you’ll want to
have a pretty good reserve and we
generally recommend three to six months
but self-employed
generally leaning towards the higher end
of that a reserve that’s secure it’s a
liquid very abet available yeah that
towards the six months of expenses I
yeah for sure and like you said you know
three to six months might make sense for
somebody who’s got a regular W to drop
but you know if you’re self-employed you
know you might have a really dry year
where it could be you know next to no
income so you might want to be looking
more in twelve months saved up and kind
of having a plan for what’s gonna happen
you know once you get beyond that
yeah depending on your situation for
sure sure the the more erratically
income the larger the reserve should be
yeah
another issue is taxes take advantage of
those low years take your capital gains
if you’re thinking of moving houses you
know that would be a good year to sell
or capital gains on investments and in
the high-income years
be careful think of 1035 exchange where
you’re not selling for the capital gains
you’re trading property you know keeping
that cost basis but trading or some way
of you know or think of of contributions
to retirement plans you know ways to
shield the money from taxes in the
high-income years and then in addition
to that estate planning so taxes and
estate planning often go hand-in-hand
but typically you know for high net
worth individuals there they feel
certain expectations therefore leaving a
legacy with the income that they’ve
earned throughout their lifetime so
there can be more complexities with that
as far as you know giving the
organizations and making sure that you
know you can actually maximize based on
taxes the gifts that you’re giving and
also kind of having a plan for family
members friends exactly
you wanted setup yeah really there can
be more complex issues yeah I think that
the state plans just divided us
I guess describing what your goals are
what your desires are if you don’t have
a written estate plan the state the
state urine has one for you so define if
you have kids from different marriages
or whatever that situation is so that it
doesn’t just go to the state default
define it so that it gets carefully
taken care of I mean we Hollywood gets a
bunch of you know crazy estate plan
situations that if they had documents
living wills powers of attorney a
beneficiary’s personal raps that could
all be avoided if their intentions were
known ahead of time I guess another one
just being self-employed is insurance
you’re gonna want I mean you may need
life insurance if you have dependents
health insurance you’ll have to take
care of if you’re self-employed yourself
unless you’re part of a you know Actors
Guild or you’re getting insurance some
other way but disability
I guess auto home just make sure you you
could be a target of lawsuits I saw some
comedian was talking about bumper
sticker honk if you have a lot of money
and if he hears anyone honks he slams on
the brakes to get rear-ended so you know
you could be more of a target if you’re
very well known yes starting fights in
bars I pick on someone who’s famous
right just hoping to win a lawsuit so
make sure you’re covered for liability
absolutely and then health insurance so
you know that can be one of the costly
or insurances typically if your employee
you’ve got the benefit of having
you know employer covering some of those
costs if not you’re gonna you know be on
the hook for all that’s the making sure
yeah you know really kind of find a good
plan that matches your needs yeah yeah
you know what with a huge hospital bill
or something like that if something does
go wrong yeah make sure you’re aware of
what – whether your coverage is that
you’re getting is wrong absolutely and
so you know in addition to some of those
self-employed issues there’s high cost
of living so typically actors you’re
gonna be living in one of the hubs of
you know acting so whether it’s in the
you know LA area Hollywood area New York
something like that typically it’s going
to be places that have a really high
cost of living and then in addition to
that there’s a lot of costs that go
along with maintaining a certain image
so whether it’s you know trips to the
salon hiring a personal stylist things
like that that can add up that your
average person doesn’t really have to
factor in so you know if you hear
stories about some people that are spent
hundreds of thousands of dollars a month
just on you know maintaining that image
or security having personal I mean
you’re probably hire you I mean
depending on the situation you’ll have
support staff so yeah there are quite a
lot of expenses so yeah definitely
having somebody they can kind of help
you track those expenses keep an eye on
and make sure they’re not getting out of
control because that can quickly eat
away at that income yeah I think another
problem with actors or athletes or
performers is they could be really busy
during a certain stretch of a career and
you want to take advantage if you have
popularity you want to take advantage
multiply or herb I guess get what you
can based on that popularity whether
it’s more advertising or spinning off to
social media or some you know making
money in other ways taking advantage of
that image but these are all issues that
you need to stand top of as well right
so you know making sure you have a team
in place that can help you
you are so busy that you don’t really
have a minute to think about those types
of things so having a good you know CPA
financial planner or attorney all those
things in place is very important yeah
and someone you could trust
you’re a fiduciary a fee-only that
you’re that you know isn’t just trying
to sell your products that aren’t
appropriate all right well I think that
kind of covers a lot of the more common
issues that come up for actors and other
you know high earners like that so
everyone has an individual situation I
mean this is just some general issues to
think about but yeah you definitely
should meet with an advisor to discuss
the your individual situation absolutely
and if you’re interested in looking for
a financial advisor you can look at the
link in our description give you some
more information about that yeah thanks
for watching thank you and please like
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