Today, I want to talk about a story that’s ripped right out of headlines, even from the tabloids, Johnny Depp’s lawsuit against his management firm. It’s got all the makings of a blockbuster movie. No fewer than three federal agencies, the IRS, the Justice Department, even the Securities Exchange Commission are investigating claims of money laundering, fraud and tax evasion. Whatever the outcome of this story is, this movie, we know it’s going to be a blockbuster. We’ve got suspense, A list actor, maybe even a little romance, who knows? Johnny Depp’s current girlfriend could make a cameo appearance. We’ve got a believable villain, big management company in Hollywood. Of course, we’ve got all of the Hollywood glamour and sizzle.
But beyond the entertainment value, there really are some good money management lessons that we can learn from this. Before we do that, let’s look at the details. Johnny Depp is suing his management company for $25 million in losses, $30 million in debt he’s has to undertake, and get this, $8 million in penalties to the IRS. That doesn’t even speak about the amount of taxes that supposedly he didn’t pay. This is just the penalties the IRS wants.
He’s claiming fraud and professional malfeasance. He’s also claiming conflicts of interest. According to him, they put him into some investment vehicles where they had some interests themselves.
Management companies are a staple of Hollywood. They handle the affairs of large executives, stars, even the athletes. They do everything from making the investments, they pay the bills, they buy the toys and the big-ticket items, they handle all of the taxes. Largely, they take discretion. They’re the, “They’ll get it done for me,” kind of guys that are hired.
Now the management company, of course, denies all the allegations. They’re actually countersuing for unpaid fees, but they say that Johnny Depp’s financial woes are due to the fact that he spends lavishly, $2 million a month, and that he wasn’t taking their advice that this was an unsustainable level.
Now whatever the outcome of the investigation and the movie that’s made, there really are some important lessons about money management, especially so for large sums of it.
First of all, set clear goals. You have to be on the same page with your advisors. That page has to have some details to it. You got to have a sense of the budget. You got to have a sense of the goal, where are you trying to go from here to there, so that everybody knows.
Number two, delegate, but don’t abdicate. This is your money, after all. It’s not theirs.
Number three, use objective advisors. Make sure there are no conflicts of interest. You want to be the only one paying them, so that they have your interests at heart.
Four, listen to good advice, even when it’s not advice you want. Now you have to be engaged enough to know if that advice is good, and maybe even get a second opinion. Of course, it goes back to our first lesson, you have to have a sense of the goal, where are you going from Point A to Point B, to get a sense for whether the advice you’re hearing is appropriate.
Number five, though, you have to live within your means, at least enough to be funding your future. You see, it’s really not how much money you make. Yes, that’s important, but we have clients at all levels of the income spectrum that are doing well. It really is how much you keep.
I may have told this story on a previous Bench Talk, but we had a prospective client who came in one day, and he’s a successful doctor or a lawyer here in town. He’s making $400,000 plus a year, but he’s having cashflow problems, and he had the vague sense he wasn’t going to be able to retire. Unfortunately, he was right, at least not any time soon.
See, the problem wasn’t the $400,000 that he was making, it was the $401,000 that he was spending. There was no margins, we call it. There was no extra amount that he was able to put aside. You see, the present, at some point, starts to become that future that you’re planning for. You have to be putting money aside and managing that money well, in order for that future to turn out the way you do.
We’ll all wait and see what happens to Johnny Depp or the movie, but whatever the outcome, guilt or the innocence of the management company, I suspect that Johnny Depp is going to have to start over again financially. Sadly, he’ll be in good company when it comes to that, the likes of Nicolas Cage, Stephen Baldwin, Jose Canseco, and even Dionne Warwick have all had mismanagement in their financial lives and had to start over midlife.
The earlier that you get on the right page, even the earlier that you make the corrections that are necessary, the easier and the more successful that future is going to be. So whatever your income level, however amount of money you’ve got, wherever you are in stage of life, if you’d like to have some advice or you’d just like to get a second opinion, we’d love to chat with you. Now, drop us an email, make a call. A first meeting, there’s no charge, and we’ll even throw in a cup of coffee and some scones at Float, a really great café just across the way from us. We look forward to hearing from you. Thanks for listening.