Michael Jackson’s memorial service will be held on Tuesday in Los Angeles. At last count over 1.6 million people had entered the lottery for a chance at one of the 8,750 pairs of tickets to the service. Clearly, he touched the lives of many… but not just with his music. Since his passing there has been a flurry of articles about his financial situation. Michael was a classic example of someone whose exterior image was at odds with his private financial reality. After 20 plus years of consumptive excess, millions of Americans are in a similar situation, facing the next chapter in our own financial thrillers. In hopes of seeing as many happy endings as possible, here are my top three takeaways from Michael’s experience:
- It doesn’t matter how much you make, if you spend more than you earn… you end up in the same dark hole. During his highly publicized 2005 trial, forensic accountants estimated that despite lifetime earnings of over $700 million, Michael was spending $20 to $30 million dollars a year more than he was taking in. How’d this happen? It appears he refused to keep track of what he was spending, preferring to live in Financial Neverland. If you’ve ever thought that making more would solve your financial woes, let this be a lesson: No matter what you’re earning, you want the equation “Money In – Money Out” to result in a positive number.
- If you want to use a four letter word, pick “cash” over “debt.” According to the Associated Press, after years of spending more than he earned, borrowing against his assets to make up the difference, Michael found himself cash strapped with just $668,000 in liquid assets at his passing (chump change given his lavish lifestyle and $100,000 a month rent). Many of us mere mortals made similar decisions by borrowing against our homes with HELOCS and home equity loans. The lesson here is: Nine times out of ten, if you can’t pay cash for it… you can’t afford it.
- If you have children, make sure you have a will. It’s a good idea for everyone to have a Will. But if you have children it is a must. Alas 60% of Americans, studies show, die without one. This is one positive lesson we can learn from Michael’s life. Can you imagine the media circus that would have resulted had a primary and backup guardian not been named for his three children? It’s not hard to create a will. You can even do one yourself using forms from LegalZoom.com or Nolo.com.