Johnny Depp was the fifth highest-paid actor in 2016 earning $48 million1. Unfortunately, almost all of Depp’s entire $8.7 billion fortune is now gone2. A fortune that included a château in France, a four-island chain in the Bahamas, and more than a dozen other residences. Is Depp yet another victim of Sudden Wealth Syndrome? The term first used by psychologist Stephen Goldbart to describe the stress, guilt, social isolation and confusion that often accompanies a giant windfall. It is often used with lottery winners and professional athletes, heirs of a large estate, but the problem can also affect actors who may have had no experience handling money on their own.
“Money doesn’t change anybody,” Johnny Depp once said. “Money reveals them. I’m still exactly the guy that used to pump gas.” But the millions the star has brought in aren’t enough to keep him afloat if the stories about his financial woes are true. How can a man who reportedly earned hundreds of millions of dollars in the past decade be broke?
I first wrote about the 5 Keys to Financial Success in 2010 following the great panic of 2008-2009. Considering Johnny Depp’s financial problems, I thought this would be a good time to review them.
1. Live Within Your Means
This would appear to be an obvious and simple rule to follow. If you take home $1,000 per week, you cannot spend more than $1,000 per week. By 2013, Depp’s expenses had ballooned to $2 million a month, according to documents in a law suit filed against his former business managers. 40 full-time employees cost Depp $300,000 a month, round-the-clock security for himself, his two children, and various family members costs $150,000 a month more. His 156 ft. yacht had a crew of eight plus operating and maintenance costs running between $300,000 and $400,000 a month plus another $2.7 million each month on private air travel. He was being paid up to $20 million a picture but would have to keep working to cover his ongoing expenses.
Living within your means should get easier as earnings rise. Many people spend or commit to spend more than they make in the hope that a bonus, overtime pay, or a tax refund will eventually help them to get caught up. I often hear people say, “If I just made more money, all my financial problems would be solved.” Johnny Depp’s problem was not that he didn’t make enough money.
Stop focusing on making more money to solve financial problems. Instead, learn to control spending. The best tool to control spending is having a budget and living within it. Without a budget, people get blindsided by expenses they were not expecting. A budget is a financial plan that allows you to determine in advance how your income will be dispersed.
2. Save Regularly
Not only do you need to live within your means, you must live below your means to accumulate savings. Your savings goal should be a minimum of 10%. A young person may not be able to save 10% when they are starting a family and buying their first house. They should begin with something and make it a goal to increase it each year until they retire.
According to Dr. Thomas Stanley, author of The Millionaire Next Door, the average millionaire saves 20% of their income and did so long before they were a millionaire. They live on a budget which is how they were able to control their spending to the point they could save 20%.
From the beginning of Johnny Depp’s acting career with the 1980s television series 21 Jump Street through Disney’s Pirates of the Caribbean movies that made him rich, Johnny earned an estimated $650 million3. Saving just 10% of that income could have set him up in a very comfortable lifestyle for the rest of his life without having to make another movie.
3. Eliminate the Use of Debt
I’m not saying no one should ever borrow money for any reason. What I’m talking about is eliminating the use of debt to maintain your lifestyle. According to a lawsuit the actor filed in January 2017 against his former managers, Depp’s debt totaled $40 million. He allegedly borrowed millions of dollars at high interest rates using his film residuals as collateral4. The money was reportedly needed to maintain his lifestyle. Access to credit all too often is the enabler of overspending that can easily outstrip even multimillion-dollar salaries.
Don’t carry balances on your credit cards. Buy used cars for cash until you can save up enough to buy newer ones. Have a plan to pay off your house. Just because you took out a 30-year mortgage doesn’t mean it has to take 30 years to pay for it. I have found that the path to being debt-free begins with making the decision to be debt-free. Once you’ve decided this is your goal, the rest will fall into place.
4. Invest Regularly
George Classen wrote a magnificent book, The Richest Man in Babylon, in which he tells the story of a working man’s quest to become rich. He describes his investments as “an army of golden slaves” that would eventually support his standard of living. The theory is that if you start out working to build your investments, one day they will work to support you.
Have a plan to invest regularly and be diligent. It’s tempting to sit on the sidelines when the stock market is falling. But you’re not going to reach your financial goals holding cash in a money market. You may miss some of the downside in the market, but no one can time the market accurately. You’ll likely miss out on more of the upside. The best time to buy is when the market is down, not when you feel comfortable, and trying to time your entry and exit into the market almost never works.
5. Maintain a Financial Plan
Start with a short-term financial plan that we call a budget. Then move on to a long-term plan that establishes the level of savings you maintain, a plan to get out of debt and an investment plan that leads to financial independence. The plan becomes your road map. There will be detours along the way – your goals and the plan will need to be adjusted as you progress in life. Keep working at it. Don’t be distracted by outside influences you can’t control. You don’t want to get to the end of your working career only to find you haven’t saved enough to maintain your lifestyle, and you still have a mortgage on your home.
Johnny Depp’s lawsuit against his former business manager for negligence, breach of fiduciary duty and fraud was settled recently out of court5. The terms of the settlement were not disclosed, so we may never know if the allegations had merit or not. It does appear that some financial mistakes were made. Sadly, this could have been avoided, with some long-term planning and clear thinking. Yogi Berra said, “If you don’t know where you’re going, you could wind up someplace else.” This is especially true in financial planning.
- Living within your means should get easier as earnings rise if you keep a lid on spending.
- The average millionaire saves 20% of their income and they’ve done so long before becoming a millionaire.
- A financial plan is your road map to keep you moving towards your long-term goals.
1 The World’s Highest-Paid Actors 2016: The Rock Leads With Knockout $64.5 Million Year. By Natalie Robehmed. Forbes Magazine. August 25, 2016
2 The Trouble With Johnny Depp. By Stephen Rodrick. Rolling Stone magazine. June 21, 2018
3 The Trouble With Johnny Depp. By Stephen Rodrick. Rolling Stone magazine. June 21, 2018
4 Johnny Depp Sues Former Business Managers for $25 Million. By Dave McNary. Variety magazine. January 13, 2017
5 Johnny Depp Settles Feud With Former Managers. By Gene Maddaus. Variety magazine. July 16, 2018