Photo courtsey of Kristin Smith

Photo courtesy of Kristin Smith

Last Friday, the sudden death of pop icon Michael Jackson put news agencies and internet discussion forums into a frenzy.  Worldwide, thousands mourned the loss of the so-called “King of Pop” with saddness and disbelief.   Amid all the media reports of his passing, it was revealed that this globally-recognized entertainer had something in common with millions of his lesser-known fellow Americans.  Like so many of us, Michael Jackson was awash in debt from years of not living within his means. 

Jackson, however, didn’t find himself so far in the hole overnight.  As a recent article in The Economic Times pointed out, despite outearning the rest of us, years of exuberant spending and poor financial decisions prevented the pop superstar from acquiring any wealth.  Not only was he not financially secure, Michael Jackson had a handful of creditors. Rewind 30 years, no one would have never seen this coming.

Road to ruin

A former star of the Jackson 5, Jackson rose to super-stardom with the advent of MTV.  In 1982, his album “Thriller” made him the most popular entertainer of his time and would later go on to become the 2nd greatest selling album ever.  It was later followed by “Bad” which sold another 22 million copies.  In 1991, he went on to sign a $65 million record deal with Sony Records.  During this same time period, he even became the star of Walt Disney’s “Captain EO” which enjoyed a 12-year run.

Although, he was able to generate multiple income streams worth millions of dollars each, Mr. Jackson was also making grave errors which would doom him.  In 1985, he acquired the rights to ATV Music with opened up a major revenue stream; however, instead of saving his money and investing wisely, he used this revenue to finance an unsustainable lifestyle.  A decade later, he would forever lose these rights after a merger with Sony result in them being sold.  With a declining cash  flow and two legal matters regarding child molestation, Jackson soon found himself in a world of hurt.

Instead of making lifestyle changes in light of his evolving financial situation, Jackson put the nail is his coffin by continuing on as usual.  He went on a borrowing spree borrowing all the cash he could to shore up an annual spending deficit of $20-30 million per year.  These debts soon evolved into further lawsuits, and by the time a heart attack took his life at 50 years of age, Jackson had accumulated an estimated $400 million in debt.

Lessons from a superstar

Now don’t go thinking I’m changing this blog into a celebrity gossip column!  I brought up Michael Jackson’s money situation for a reason.  The main one being that his story validates the following financial truths which I believe to be ”chiseled in stone and carried down the mountain.”

  1. Income does not equal wealth:  In the 1980’s and 1990’s, Jackson’s earnings equaled $50 million per year.  Given that, he still died hundreds of millions of dollars poorer than any homeless man you would see sleeping on the street.  This is a perfect example of a rule that holds true in many aspects of life: A poor defense negates even the greatest offense.
  2. Nobody is immune to debt:  Just as you and I can easily let credit cards and home equity loans get ourselves over our heads, bad investments and “living like a rock star” can quickly lead our idols to financial ruin. I once read that the teaching professions boasts one of the highest per capita rates for millionaires in the country.  No, teachers don’t make a lot; however, as a group a high percentage of them tend to be financially savvy. 
  3. Mindless consumption = certain downfall:  Through our desire to accumulate ”stuff” we not only poison the earth, but we also poison our pocketbooks.  True happiness arises from relationships and personal accomplishments.  As they say, some of the poorest people in the world are amongst the happiest. 

Final thoughts

In the end, Michael Jackson taught us a lot about our finances through his untimely death.  Celebrities are just like us and suffer through the same vulnerabilities.  Thus, as I leave you with a few things to ponder:  Do I live within my means?  What are my means?  Do my material possession make me happy?  What really makes me happy?

Thank you taking the time to read this post.  Have a great week!