What do movie stars and the rest of Americans have in common? When they get into financial trouble and they cannot pay their mortgage, their home will be foreclosed just like everyone else. This very thing has happened to The West Wing star Allison Janney and a house she bought with long-time friend, and fellow actor, Gregg Rapp. With their sizeable incomes and a net worth of over $2M, how does this happen to celebrities?
The first problem is that they end up buying way too much house. The two actors bought the house in Palm Springs for just under $4M back in 2006. They enjoyed the house for a few years and in 2010, smack in the middle of the housing recession, they tried to sell it for $5.5M. Obviously, houses of this nature were not moving, and after just 7 months they knocked $1M off the listing price. Soon, another half a million came off, and as of October 2012 ownership has reverted back to the bank for failure to pay on the remaining $2.2M balance on the loan.
While it can be fun to gossip about celebrity news, the lessons learned are applicable across the board. Despite how rich and how famous a person is, the need to budget is always there. Part of that budget must include an emergency fund for when the sizeable income dries up while between acting jobs. Just like when a middle class American gets in over their head and then loses their income, a celebrity losing his or her income will have the same dire results. Rather than losing a quarter million dollar house, they lose a multi-million dollar house. The big difference, though, is that Janney is still living in an $800,000 house in L.A. that she owns.
Regardless of how much money you make, you should always live within your means. Part of living within your means is planning for the unexpected. For many people this means purchasing a disability insurance policy that will cover the bills in case something happens and you cannot work. It also means setting aside money in an emergency fund to help through those extended periods where you find yourself without work. Next time you find a piece of celebrity gossip, take time to compare it to your own life. If you were between jobs, would you lose your house? If so, take the steps needed to build up your emergency fund so you don’t find yourself in the same situation.
This article was first published on http://moneyprime.com.