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 and subscribe. Yeah. ThanksĀ 

 

 

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