He often hit the stage resplendent in gold and rhinestones, his lifestyle was notoriously lavish and he ruled a kingdom of adoring disciples: pop music fans, who bought more than 750 million records worldwide and flocked in the millions to sold-out concerts. Such was Jackson's influence, that even though he hadn't performed since 1997 or released a record since 2001, he was able to command $85 million in ticket sales for a sold-out tour he would never perform.
But despite the fact that Jackson's talent and shrewd business sense allowed him to rake in millions over his lifetime, when he died of a heart attack Thursday, he was reportedly more than $500 million in debt.
Learn How To Dig Out of Debt
Nine-Figure Fortune: A Financial
Thriller
To those of more modest means, it seems impossible that someone who
earned more than $500 million in royalties alone should run out of
money. In fact, many people assume that the super-rich don't
have to worry about money at all. Nine-figure fortunes are so far
beyond most peoples' own incomes, that it's hard for them
to even imagine the bottom of such a large pot of gold.
This misconception is apparent in lottery winners, one-third of whom spend their way to the poor-house in a matter of years, according to the Certified Financial Planners Board. This is a result of poor money management – and the misconception that budgeting and financial planning does not apply to millionaires.
Michael Jackson's king-sized financial problems have
dethroned this myth.
Moonwalking the Hedonic Treadmill
So how does a mega-millionaire rack up such massive debt? It occurs
for the same reason as it does for those with more average
earnings: expenses exceed income.
Although hundreds of millions of dollars may seem like bottomless wealth, poor money management can lead to the depletion of even the most stately sums. This is because people – whether famous or not - generally fall victim to what's known as the lifestyle creep; their desires rise right along with their incomes. So, their lifestyles rise to meet – or in Jackson's case, surpass – their incomes.
According to a forensic accountant who testified in Jackson's 2005 trial for molestation charges, Jackson was suffering an "ongoing cash crisis", and was spending $20 million to $30 million more than the estimated $19 million he earned through royalties each year. While Jackson's expenses may have been extravagant, his behavior is shockingly average: the U.S. Commerce Department reported in 2007 that Americans, on average, were spending more than they had earned. Although the recent credit crisis has recently reversed this trend somewhat, it is clear that in good times, people tend to jump on the hedonic treadmill and keep on running.
Learn How To Dig Out of DebtBad Spending Habits
Take Michael Jackson's 2,600 acre Neverland Ranch estate. The
property was Jackson's personal kingdom, boasting a fairground,
a 50-seat cinema, a zoo and an assessed value of more than $17
million in 2006. It sounds extravagant, but at least in terms of
paying the mortgage, it's actually to scale with a $19 million
income.
But Jackson was also described as collector and shopper, who
reportedly spent $4 million on a single Las Vegas shopping spree in
2003. Ten-foot glass urns may not be on everyone's shopping
list, but for the super-rich, the scale of expenses expands along
with income, and there is no shortage of extravagantly expensive
luxury items to cater to people with ultra-thick pocketbooks and an
exclusive limit-free credit card.
The truth is, money is a finite resource. By definition, this means
that no matter how much you have, it can never be unlimited. And as
long as there are millionaires, there will be no shortage of
ever-grander (and ever more expensive) luxury products. Good money
management applies to all income brackets. Michael Jackson carried
an air of aristocracy even among the most elite celebrities, but
although he lived like a king, he died in debt.
- By Tara Struyk
More From Investopedia: