After the big real estate crash of 2008, a friend sent me the book book titled “They Went Broke – Bankruptcies and Money Disasters of the Rich and Famous.” Oddly enough, the book was written by an attorney, Roland Gary Jones, who was having money problems! He wrote:
“I’m writing this book primarily because I need the money to pay my creditors.”
The book highlights 188 rich and famous people who went broke and includes names such as Eliot Ness, Harry S. Truman, Sam Adams, Daniel Boone, Abe Lincoln, Thomas Jefferson, Ulysses S. Grant, Larry King, Gloria Vanderbilt, Toni Braxton, Merle Haggard, MC Hammer, Tom Petty, Oscar Wilde, Frank Lloyd Wright, Charles Goodyear, PT Barnum, Henry Ford, and Sam Walton. There are many more.
The book is important for us because it shows us that some of the most important people in history struggled financially at different points in their lives. Several U.S. presidents were broke. Many inventors, sports stars and business moguls have also had financial problems, too.
I found this to be very helpful when I was teetering on the verge of bankruptcy. I felt shame for being in such a challenging financial situation, and his book helped me to understand I wasn’t alone. More importantly, the book helped me to see that my financial challenges were temporary and didn’t have to define my future.
Abe Lincoln opened a convenience store with a friend. He borrowed heavily for his store. His store ultimately failed, and he was sued by creditors. Apparently, he even lost his horse, saddle, and bridle when the sheriff seized his assets for auction. (He had a hit country music song on his hands!)
It took Lincoln 17 years to repay the debt because there were no bankruptcy provisions at that time. He told a friend, “That debt was the greatest obstacle I have ever met in my life; I had no way of speculating, and could not earn money except by labor, and to earn by labor eleven hundred dollars besides my living seemed the work of lifetime.”
Many of the individuals profiled ended up building massive wealth AFTER their financial problems.
Samuel Clemens (Mark Twain) invested large sums of money into a machine that was supposed to set type faster than any human. He lost his $190,000 investment and was hounded by creditors for nine years. He was bankrupt at 60. He recouped his fortunes with a successful world tour and through new books he wrote.
(NOTE: Several people profiled actually wrote books in debtors prison. The income from their book sales ended up paying off their debts. A book is an information product. Anyone can create an information product).
Our financial challenges do not define who we are. They can be temporary. And we can use what we learn during our challenging times to make better decisions going forward.
This book also allows us to see commonalities of financial failure. As I was reading the book, I actually tracked what led to each person’s downfall. I set up a spreadsheet and marked the cause of each failure so that I could identify main causes leading to financial failure. My handy-dandy
spreadsheet kicked out the following top five reasons:
Failed businesses – Since the book profiled the Rich & Famous, those profiled typically had large incomes. They used this large income to invest into different businesses. In addition, many borrowed money to invest into these businesses, too. When these businesses failed, they lost everything.
Former U.S. Senator George McGovern opened an 150-room Inn in Stratford, Connecticut in 1988. By 1991, just three years later, he was bankrupt due to the recession and back taxes.
Or how about Wayne Newton, who invested significant amounts into a resort in the Poconos, speculating that casino gambling was coming to Pennsylvania. Gambling never came (back then), and the property couldn’t meet the $7 million mortgage.
Investment speculation and too much debt – As you might imagine, many borrowed heavily to speculate with various real estate investments.
Fife Symington was elected governor of Arizona based upon his business acumen. Soon after getting elected, his various investment failures brought him down. He had several failed real estate ventures, in which he personally guaranteed the financing. One of these investments was the development of the Mercado Mall in Phoenix, where he personally guaranteed a $10 million loan. (This was my costly mistake!)
Jean Getty, one of the sons of billionaire J. Paul Getty, borrowed heavily for real estate development. He signed personally on this debt and lost everything when the real estate market crashed. This particular son wasn’t included in Getty’s trust, and his brothers ended up supporting him after this real estate failures.
Or how about John Connally, who was a former U.S. Treasury Secretary. “Connally entered the real estate business with his partner Ben Barnes, shortly before the collapse of the market in Texas. They borrowed heavily to develop $200 million worth of properties in Austin, on South Padre Island. Unbelievably, Connally put himself personally on the line for many of his real estate deals. Ruined by the collapse of oil, gas, and real estate values in the 1980s, Connally filed for bankruptcy in 1987.”
Lawsuits, legal problems & the IRS – The legendary Tom Petty ran into legal issues with MCA Records. The sued him for breach of contract, leading to his bankruptcy. After his bankruptcy, he ended up making millions of dollars with a new record label. This category also includes
IRS problems for non-payment of taxes.
Kim Basinger lost an $8.5 million lawsuit for breaking an oral contract to appear in a movie. She filed for bankruptcy the same day she lost this suit. Her bankruptcy filing included $43,000 in monthly expenses, including $6,100 for clothes and $7,000 for pet care.
Spending too much/high cost of living – Wayne Newton, mentioned previously, lived on a 50-acre estate with a $32,000 monthly mortgage payment. He also owed $14,000 to American Express and $341,000 to the IRS.
MC Hammer spent money like it was going out of style, which is exactly what happened. His massive income disappeared, leaving him with massive monthly expenses. He owned 17 cars, racehorses and an estate with its own bowling alley. He also traveled everywhere by private jet and ended up being named in 24 different lawsuits.
Or how about Burt Reynolds, who bought a private jet, a helicopter and five mansions, and kept a stable of over 100 horses. If these ultra-high expenses didn’t ruin him, his failed investment into 30 Po’ Folks restaurants did. Reynolds also signed personally on several of business leases and ended up being financially responsible when they failed.
Booze, drugs & gambling – Lawrence Taylor, one of the best football players in history, ended up filing bankruptcy in 1998 due to a cocaine addiction. Judy Garland, the star of The Wizard of Oz, died of a drug overdose owing over $4 million. Andy Gibb resorted to cocaine when his relationship with Victoria Principal ended.
Obviously, many of these financial problems overlapped from one category to another. Some of these individuals spent too much money, had legal problems and lost money on speculative business deals while drinking and abusing drugs. By studying these various financial failures, we can create our own guidelines to help us avoid similar challenges in our lives. Here are a few rules for us to consider:
- NEVER sign personally for any business or large real estate
investment loan. This is the mistake that almost led to my own
bankruptcy. I signed personally on the mortgage for an 8,000-
square-foot commercial building that lost 70% of its value in the crash. I also signed personally on other real estate investments. I knew better, but my greed overshadowed better decision-making on my part.
- DO NOT make speculative investments if you have debt. Debt and speculation are a recipe for financial disaster. If you don’t borrow money, you can’t go bankrupt. I’ll even go one step further… don’t speculate. Always invest INTO demand by testing your investment results before you invest. See my book “The Cashflownaire Plan” for details on how to do this.
- Make paying off debt a priority. Abe Lincoln felt that debt forced him to work for money. Because he owed too much, he couldn’t use his money to make more money.
- Protect your ASSets. Many of these individuals ended up in financial difficulty because of legal issues. Many of these legal issues may have been minimized with proper asset-protection strategies.
- Rent expensive things instead of buying them. Don’t buy a mansion. Rent one for a few months. Don’t buy horses. Just pay to ride whenever you want. Always remember that a large income WILL eventually disappear at some point in the future.
- Pay your damn taxes.
- Be very, very careful with any and all addictive substances. One of John Goodman’s important rules in the movie The Gambler is… “DON’T DRINK.” This rule is to prevent costly mistakes that may jeopardize being in the Glorious Position of F – You.