TheBigLead.com

Broke professional sports stars are nothing new, but ever wonder why athletes — with their outsize salaries — seem so much more prone to bankruptcy than Average Joes?

The New York Times took a shot at answering that question in a recent “Your Money” column by interviewing Hall of Fame quarterback Steve Young:

Steve Young has done pretty well for himself. He laid the groundwork for fiscal sanity by majoring in finance at Brigham Young University, won the most valuable player award after leading the San Francisco 49ers to victory in Super Bowl XXIX and is now a managing director at Huntsman Gay Global Capital, a private equity firm.

So how well did he do with his money when he started his professional career? “I wasn’t ready to deal with it,” he said. “Just take the driving analogy. Very few people would be able to handle going zero to 100. Good luck. It’s a lot, and it’s very fast.”

His advice for rookies is to deliberately slow down, way down, something echoed by the National Football League’s Players Association, their union. “ ‘Give yourself a time out’ is what I tell them,” said Dana Hammonds, the director of player services and development for the association. “Focus on football, and after you go through the season, you’ll have time to figure it all out. There is absolutely no need to get involved in any kind of investments. The only thing they need to do is figure out cash flow in their first couple of years.”

While few of us will ever earn the kind of money that a rising sports star can expect right out of the gate, that same advice holds true for anyone who receives an unexpected windfall, whether it’s a sweet raise or an inheritance. If there’s one lesson that Econ4U tries to pound home, it’s not what you make, but what you keep that matters most.

Flickr.com

Being a personal-finance aficionado, I always click on those articles that promise to help cut the fat from your budget. Most recently, I was intrigued by the idea of RealSimple.com’s “24 Hours of Savings” article for finding ways to trim your spending throughout the day.

However, it’s disappointing that the bulk of the advice seems to be to cut back on lattes, deli sandwiches, sweets, booze, and takeout. All told, the amount of money the article says you can save by slashing those edible expenditures amounts to at least $26 per day.

My first reaction? “If you’re spending $26 a day on takeout, that’s $9,490 a year — no wonder you have money problems.”

It’s an unfortunate habit for personal-finance articles to contain unhelpful, overly general advice you have probably already thought of yourself. (For your amusement, here’s another example.) And much of the time, it amounts to little more than pound-foolishness.

So let’s put the question to you: What’s the most simpleminded advice you’ve ever seen in a personal-finance publication? And what kinds of tips do you find the most helpful?

NYDailyNews.com

News has broken that there will be a 2011 pro football season after all (woohoo!). Under the deal, veteran NFL players will still be paid millions for doing what they do best. However, the ability to earn an outsize paycheck doesn’t mean that all NFL stars are financially secure.

The Wall Street Journal reports this week that two big names on the gridiron are fending off creditors instead of opponents on the field:

Former NFL defensive back Rick Sanford has admitted to fumbling. Sanford, also a former University of South Carolina football star, pleaded guilty to bankruptcy fraud and was given 30 days’ home confinement and 100 hours of community service, according to the State. The newspaper noted that Sanford’s legal troubles began after he filed for Chapter 7 in 2009. When a bankruptcy trustee challenged his list of assets—which included two Lexuses and a time share—he withdrew his bankruptcy petition.

Sanford wasn’t the only footballer in the news this week. Veteran quarterback Mark Brunell’s finances may become more strained Friday, as the New York Jets cut the 40-year-old backup, the Associated Press reported. That means Brunell won’t have his $1.25 million salary to draw on as he attempts to right his financial ship following his bankruptcy, which was largely wrapped up this off-season. Another team, however, may still sign Brunell. Under the former Pro Bowler’s debt-elimination plan, Brunell had committed to paying $16,300 for his personal effects—including a Super Bowl ring—to prevent them from heading to the auction block.

As we’ve mentioned before, pro sports players seem especially prone to bankruptcy when they start living outside their means. This news just goes to show that it’s not what you earn, it’s what you keep.

Life.com

Actress and dancer Debbie Reynolds, who’s perhaps best known for starring in Singin’ in the Rain, spent much of her career collecting an estimated 3,500 costumes and thousands more props to create a museum of Hollywood memorabilia. Unfortunately, sinking so much money into her hobby landed her in more than $4 million worth of debt, and a California bankruptcy judge ordered her last fall to auction off items from the collection to pay back her creditors.

Luckily for Reynolds, the court-ordered compromise worked better than anyone could have predicted.

Beverly Hills-based Profiles in History held an auction for select items in the collection last weekend and the proceeds far exceeded projections. The peak of the evening was the bidding war over the iconic white “subway grate” dress that Marilyn Monroe wore in the poster for The Seven Year Itch. That dress netted $4.6 million after commission — more than enough to settle Reynolds’ debts with that one sale alone.

Also among the notable bids were Dorothy’s ruby slippers and blue cotton dress from The Wizard of Oz, which sold together for $1.75 million, and one of Charlie Chaplin’s signature bowler hats, which went for $135,300.

Other auctions were initially planned but the success of this event may be enough to rescue Reynolds from financial ruin. And it provides a good lesson: When you feel completely broke, check your attic or basement for anything you can sell to scratch up enough cash to cover your bills as a short-term solution.

BravoTV.com

The Real Housewives reality-television franchise has spawned more bankruptcy filings than pro sports and celebrity accountant Kenneth Starr combined. We wondered why, so we reviewed the most notorious examples of the “real housewives” living beyond their means.

• Teresa Giudice is one of the most combative Real Housewives of New Jersey, and with this group, that’s quite a feat. A year ago, she and her husband Joe filed for bankruptcy with liabilities approaching $9 million while their income was reported as only $79,000 between them. Yet in the season that’s currently on air, Giudice continued to shop ’til she dropped (or more likely, until her credit limit is lowered).
• Sonja Morgan cried during last night’s episode of the Real Housewives of New York City while discussing her recent bankruptcy filing, which disclosed $19.8 million in debt and $13.5 million in assets following her bitter divorce from John Adams Morgan, the grandson of financier J.P. Morgan.
• Alexis Bellino of the Real Housewives of Orange County — the original show of the franchise — nearly lost her $6 million home to foreclosure proceedings in December after her husband Jim, a real-estate speculator, filed for Chapter 11 bankruptcy proceedings. You can view the waterfront mansion here, which was taken off the bank’s hands in a March short sale for $3 million.
• Michele Salahi only appeared in one season on Bravo — in the now-defunct Real Housewives of D.C. — but it was long enough to reveal the company she owns with her husband Tareq has gone bankrupt.
• Taylor Armstrong from the Real Housewives of Beverly Hills likely knows full well that her husband Russell filed for bankruptcy in 2005 with less than $50,000 in assets and millions in debt, but that didn’t seem to stop them from throwing a lavish $60,000 party to celebrate their daughter’s fourth birthday last year.
• NeNe Leakes, the breakout star of the Real Housewives of Atlanta, was evicted from her five-bedroom rental home in 2008, owing $6,240 in back rent. That’s not all she and her husband Gregg owed, either: The Leakes family reportedly also owes more than $100,000 in unpaid taxes.

The question must be asked: Can’t Bravo scratch up some real millionaires for the casts of these shows, rather than glamorize these pretenders to wealth? Or does starring on reality television cause the featured families to lose whatever financial sense made them rich in the first place?

Either way, it can be tempting to watch the lifestyles of the “rich and famous” on television and want to mimic their lifestyles or spending habits. But the bankruptcy track records show that isn’t the best idea.

MTV.com

On April 4, the IRS put liens on the Osbournes’ two Los Angeles-area mansions to cover tax debts of $718,948 from 2008 and $1,024,175 from the 2009 tax year. (Daughter Kelly was also slapped with a $34,000 lien last month.)

To the Osbournes’ credit, they promptly resolved the matter by cutting a check to the IRS last week. Sharon took to her Twitter page to explain the screw-up, which she said left even her accountant in the dark:

You can’t rely on anyone but yourself. You have to be on top of your own business affairs. My fault……..lesson learned

At more than $1.7 million, it was an expensive lesson indeed!

HuffingtonPost.com

In the home-buying process, the first question you must answer is “how much house can I afford?” And in an effort to determine that amount responsibly, you may have googled for a calculator like this one on CNNMoney.com, which will tell you that you can spend between 28% and 36% of your gross income on a mortgage.

But just how realistic is that advice? Let’s run some numbers.

Say the Smith family earns $52,029, the median household income (in 2008, the most recent year for which data is available). They have saved a 20% down payment on the median home price – which currently rests at $140,000 – for a down payment of $28,000. The national average interest rate for a 30 year fixed mortgage is 5.01% right now, so we plug that in as well. And we’ll also assume the Smiths are making $300 monthly payments on student loans, car notes, and credit-card debt.

The calculator reports the Smiths can buy a house valued between $192,162 and $217,016. That’s up to 55% more than the average home is selling for right now.

Surprised? We are. The lending guidelines on which this calculator and its copycats are based tell people they can afford to spend more on housing than they really can.

For example, if you’re spending 36% of your gross income on a mortgage, another 25% or more on taxes, and then you’re responsible for other monthly expenses like debt repayment, groceries, utilities, healthcare, home maintenance, and transportation, what exactly is left over for a rainy day? If you followed that advice, saving anything would be basically impossible for the average household. It’s a recipe for falling behind.

At Econ4U, we often talk about “living within your means.” But to figure out what that really means for your household, you may have to ignore commonly accepted rules of thumb and use your head instead. After all, that’s where your brain resides.

FanPop.com

Here at Econ4U, when I catch a celebrity screwing up in a major financial way, I recap the story in our Famous Financial Flubs section. Not because I’m gleeful at someone else’s misfortune, but because it can serve as a valuable lesson for everyday people and help everyone handle their money better.

However, WalletPop columnist Lynnette Khalfani-Cox sees it a little differently. She says celebrities have several legitimate reasons that they so often seem to forget to pay their taxes:

Despite all the bling and the perceived glamor that comes with being an A-lister (or even a D-lister), the truth is that it’s tough being a celebrity and keeping your finances straight. …

So in effect, the IRS might look at a celebrity’s overall financial picture and say: “You’re making $1 million a year, you should have “X” amount of cash flow,” without taking into account that the celebrity has a $7,000-a-month mortgage — not the average $2,000-a-month mortgage, for example.

While she makes a fair point that being rich and famous can put a target on your back for the IRS, I think few Average Joes are going to empathize with someone who’s falling behind on a $7,000 mortgage payment on a multimillion-dollar home in Malibu.

And not all celebrities live beyond their means. I, for one, think The Office star John Krasinski’s 1,279-square-foot, two-bedroom house in West Hollywood is charming, and far more modest compared with the properties other popular television actors seem to be buying up. (Paging Eva Longoria.)

Do you have a lot of sympathy for celebrities who can’t seem to get it together financially?

NBA.com

Just when you think playing for the NBA couldn’t get any better between the insane paychecks and adoring fans, here’s a new perk: If you’re a big enough star, your employer will even pay your way out of trouble with the Internal Revenue Service.

That’s what former Miami Heat point guard Tim Hardaway found out last month when his team bailed him out of tax trouble. By the time he retired in 2003, Hardaway was paid nearly $50 million over the course of his 14-year pro career, but the IRS says he owes $120,748 in unpaid income taxes dating back to 2005 and 2006.

Last year, the tax agency filed a lien against his 7,542-square-foot mansion outside Miami. But the Miami Heat has come to his rescue, buying the home for just under $2 million. The five-bedroom property (complete with swimming pool and private basketball court) is now back on the market for $2.5 million.

Unfortunately, financial illiteracy among pro sports players is nothing new. (This article from CBS Sports describes how rampant bankruptcy runs among retired basketball players, even as early as 5 years after they leave the game.)

If taking care of their own is a priority, perhaps rather than making a habit of bailing former headliners out of trouble, the NBA can focus more of its resources toward money-management classes for current players — before it’s too late.

The article follows the Pemberton family in St. Petersburg, Fla., who have stopped paying their mortgage so they can put their money to more fun use, such as trips to a casino and joyrides in an airboat:

“Instead of the house dragging us down, it’s become a life raft,” said Mr. Pemberton, who stopped paying the mortgage on their house here last summer. “It’s really been a blessing.”

Because of the glut of homes in default in Florida, foreclosure proceedings last an average of 518 days. The Pembertons have yet to be evicted — meaning they will continue to live there rent-free until the bank collects its due.

The people interviewed for the article make the case that the banks should pay the price for the naïve decision to grant them mortgages in the first place, but the justification seems to originate from an ethics-free zone.

And it’s a short-sighted game, to say the least. Once the bank gets around to completing its paperwork, not only will these borrowers lose their homes, but their FICO scores will plummet by up to 280 points. And the foreclosure will stay on their credit reports for 7 years —almost as long as a bankruptcy.

Considering what their credit history means for their future job, housing, and credit prospects, these homeowners need to reconsider whether scamming the bank is worth it in the long run.