From rich to broke?

Added (1 Feb 2017):


Over the best part of two decades, Johnny Depp has been spending US$2m a month, according to TMG, which is suing the star for an unpaid loan.

The actor is alleged to have forked out US$75 million on 14 homes, including a 45-acre (18-hectare) French castle, a chain of Bahaman islands, several Hollywood homes, penthouse lofts in downtown LA and a horse farm in Kentucky.

Since 2000, the actor has spent US$18 million on a yacht, bought 45 luxury cars and shelled out almost US$700,000 a month on wine, private planes and a staff of 40 people, according to the lawsuit.

TMG says Depp has accrued more than 200 artworks by Warhol, Klimt and other masters, 70 collectible guitars and a Hollywood memorabilia collection so extensive it is stored in 12 locations.

"... when Depp's bank demanded repayment of a multimillion-dollar loan and Depp didn't have the money, the company loaned it to him so that he would avoid a humiliating financial crisis." TMG attorney said in a statement.

Source: CNA





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I have shared this story many times before but I might not have blogged about it and that is how someone I know who was making >$15k a month at work became broke.

This person was quite a few years younger than me but he was very successful in his career and by the time I got to know him a few years ago, I know he was definitely making >$15k a month. 

It could have been >$20k a month but he wouldn't say.

Home was a 3 bedroom condominium in D10 which he bought a few months before getting married. 

He had a Mercedes Benz S something. He was always well dressed and each of his watches (yes, he had more than one watch) would probably have cost me a few months' salary. 

He and his wife would go on annual holidays to Italy, France, Switzerland etc. 

Although he was making a very nice salary, to have been able to have all that he had, he must have been heavy on credit.




When the Global Financial Crisis happened, he lost his job and everything unravelled. 

Of course, at that time, it was hard to sell any piece of real estate for a good price. 

The car would definitely be sold at a hefty loss. 

Pre-owned big name watches would be worth very much less as well.


For him, it was a swift descend from heaven to hell. 

Everyone who knew about it was shocked because he always appeared so confident and so wealthy.

What can we take away from this?





1. Everyone needs to learn financial management skills. 

The younger we learn the importance of financial prudence, the better. 

At its simplest, everyone should learn how to save and grow our hard earned money.



2. Everyone wants a higher standard of living. 

So, often, people end up buying expensive cars, expensive homes and expensive everything. 

However, what this also means is that we have higher costs of living. 

Can we not have a higher standard of living without a much higher cost of living?






3. Everyone needs to think of all the bad things that could happen to them. 

I know it can be depressing but it is necessary. 

How long can we continue in our current lifestyle if we were to lose our jobs? 

What if we or our dependents were to need long term medical care?

Stress test our finances. 

If we cannot pass these tests, we better do something to set our houses in order.






Of course, a very good question to ask would be: "Was he ever rich?"

All of us might have friends or family members who are living beyond their means. 

Of course, sometimes, people need to suffer a fall before they are aware of their financial mortality but I feel that it is our responsibility to at least talk some sense into them, if we could. 

It is as much for their own good as it is for ours.




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Johnny Depp's story makes my friend's story sounds like a walk in the park? 

Sorry. 

To me, there is no difference. 

To me, broke is broke.

Related posts:
1. A common piece of advice on savings.
2. Wage slaves should be fearful.
3. "How to tell if you are rich" by Alexander Green.

Tea with Skipper: How much do we need to retire on?

Some time back, Skipper very graciously made me a promise to do a guest blog to share his thoughts on his retirement and what he thinks is sufficient for him in terms of money needed. True to his word, here is the blog:

First some caveats :
 

• What is written should not be construed as advice but merely the planning and thoughts of an individual who has stopped full time employment.
• To stop full time employment, you must not have any outstanding debts such as mortgages for your dwelling or any other item you cannot pay off immediately should the need arise.
• You do not have any dependants or children who are not earning their own living.
• You are of reasonably good health without any major dependency on long term expensive medical treatment.
• You own the dwelling you are living in.
• Circumstances will vary from individual to individual and the list is by no means exhaustive.

 

Now that the assumptions are out of the way, we can seriously look at the expenses you would incur when you don’t have a monthly salary. Before we look at the day to day expenses, some important and in fact necessary expenditure must be in place. In terms of importance, they are as follows :

Insurance

The most important are the H&S policies like MediShield. I cover my wife and me with the Enhanced IncomeShield with Riders. Better still if you can go for one that covers private hospitalisation as well. This is often one of the neglected areas, which will become very obvious when we fall sick and worse still if it is chronic.

Travel insurance if you make occasional trips abroad. Get an annual coverage if you travel often. We cover ourselves with an annual policy at $650 / year per person.

I intend to cancel all my WholeLife policies this year as we do not have any dependants. One policy which I have been faithfully paying for the past 20 years for a $75k coverage will return $38k. For TPD, I will buy a Personal Accident policy.

Annual Expenses

These would include Property Tax, Car Road Tax and Insurance and any other expenses which are particular to each of us.

Monthly and Daily Expenses

These would include conservancy charges, newspapers, PUB, telephone, internet, cable TV, petrol, parking charges, membership dues etc. List your own and tally the total amount.

Contingencies

Household maintenance/repair charges, replacement of appliances, dental treatments, car maintenance/repairs.

Leisure

Travelling expenses, course fees for leisure activities or classes. Set aside a certain amount for these activities. 

For my wife and I, we would need about $5,000 a month without the Leisure activities. We have put a sum of $20k for the leisure activities. So, it would all add up to $80k per year.

To be on the safe side, I have planned for a passive income of at least $100k per year but would prefer it to be $120k to cater for inflation in future. The additional sum can be reinvested for more income to cover inflation.

The $5,000 figure works for me but I am sure many would be able to do with lesser. One of the ways would be to cook at home more and eat out less. It is not only cheaper but also healthier as you can control what you put into the food you are eating. 

Please work out your own figures and add whatever buffers you feel comfortable with.

Skipper, thank you very much for sharing. :)

Read another guest blog:
Tea with EY: Money talk, money laugh.

Related post:
Why a wealthy nation cannot afford to retire?