educational

Money Management

Sherman Fridman
The story has been told many times before. A top-name celebrity or professional athlete comes to the end of what was a very lucrative career — years of receiving multimillion-dollar salaries, extravagant gifts and a jet-setter's lifestyle — only to discover that they're broke.

How did this happen? There are any number of reasons: bad investments, uncontrolled spending, scams, outright theft and, at the heart of it all, poor or nonexistent financial planning.

And there are lessons in their stories that can benefit adult performers. Even when you're not earning anywhere near seven figures per picture or spending lavishly, you can still learn plenty from the money management mistakes of others. And trust us: It's better to learn from their mistakes than your own.

Financial Planning
The first lesson in effective money management is basic: Define your lifetime financial goals. The more specifically these goals can be expressed, the easier it is to plan for them. For example, it's not enough to say, "I want to retire at 35." Where and how do you want to live? How much money will you need each month to support your lifestyle?

The more precisely you calculate your needs, the better equipped you will be to approach Step 2: developing a financial plan. This plan should be an ongoing process of wisely managing your money so that you can achieve your financial goals and meet those financial emergencies that inevitably arise throughout life.

According to the Financial Planning Association of Denver, with proper money management and planning, it's very realistic for about half of all young Americans to achieve a personal net worth in excess of $1 million in the span of 30 years.

But these projections assume that an individual's earned income over the next 30 years will increase at a steady pace while the dollar amount invested increases in tandem with income. Unfortunately, this assumption does not apply in the adult film industry, where the highest-earning years are the early, younger years and neither a 30-year career expectancy nor an increase in earned income over that period is realistic.

For an adult film actor to achieve the same retirement result, a greater percentage of his or her early income must be set aside for saving and investing. And because the investment window is shorter, adult performers might want to allocate a portion of their investment portfolios to higher-risk investments because, as money managers are fond of saying: the greater the risk, the greater the potential reward.

Stay on Budget
Another key element of any financial plan is a budget. Many financial planners who work with professional athletes put their clients on a budget that ensures the athletes they will be able to meet their basic expenses each month, including those months during the off season when they're not getting paid. The challenge of smoothing out uneven income resulting from sporadic work or an industry-wide shut-down needs to be considered by those working in the adult film industry as well.

An even bigger challenge is curtailing non-budgeted expenses, such as those made with a credit card. A budget is no good unless it is strictly adhered to, and no non-budgeted item should be purchased with a credit card.

Planners also emphasize preparing for the worst-case scenario by putting money into an emergency fund. Seymore Butts, co-owner of San Fernando Valley-based Lighthouse Talent Agency, advises the talent he represents to "follow the 10 percent rule and pay themselves first."

Butts' agency is the only one serving the adult film industry that also offers its clients tax and investment advice. His strategy is simple: Take 10 percent of every check received and deposit that money into a separate saving or income-earning account so that it will be available in the event that there is more than a brief slowdown in film-making activity.

However, setting aside a portion of every check received may not be enough to cover catastrophic situations, such as long-term or permanent disability. Competent financial planners recommend disability insurance to recover at least some of a performer's lost earnings in the event of a career-ending accident or illness.

But perhaps the best money management advice comes from someone who is not a financial planner. Gale Sayers is a NFL Hall of Fame running back whose career was cut short because of injuries. His advice to young football players: "Prepare to quit." In other words, know what you're going to do, and how you're going to do it, when the highprofile career is over. This is advice that's equally applicable to adult film talent as it is for young athletes.

Derek Hay, owner of LA Direct Models in the San Fernando Valley, says that financial issues occur more frequently among his female clients than with the men on his roster. He attributes this to female talent being younger, less financially experienced, and generally having shorter careers. Hay tries to encourage the performers he represents to treat their occupation as a serious business by incorporating and keeping proper business records, and he refers his clients to outside professionals for these services.

Butts also notes that his female clients are more likely to fall into what he calls "The Trap." He explains The Trap this way: Because money is so easily earned in the adult film industry, especially for female talent, there is a tendency for clients to overspend, expecting to make up any shortfall with income from their next film. But, the next film often becomes the next two films, or never, and the client is left having spent unearned money, creating a trap from which there is no easy escape.

Financial planning and money management are not hard. But, they do require diligence and attention to detail, something most people, including adult performers, would rather avoid. Plus, performers have a lot of distractions and other responsibilities. Enter the professional financial planner, who can be anything from an occasional financial advisor to a full-time, billpaying money manager.

Professional Advice
A good financial planner views his or her client as a small corporation needing a whole range of corporate services, everything from insurance products to banking services and investment advice. While the client is the chief executive of this small corporation, the financial planner serves as the CFO.

How do you choose a good financial planner? It's not easy, and there is no foolproof method. Many highearners now rely on specialized money management firms, prominent banks and investment firms for their financial planning advice. In addition, financial management is also part of the services offered by many stockbrokers and insurance companies. A few of the companies that offer financial planning services include Schwab, American Express, Ameriprise Financial and TD Waterhouse Group.

The Certified Financial Planner Board of Standards recommends that you interview and evaluate several financial planners to find the one that's right for you. Pick a competent, qualified professional with whom you feel comfortable, one whose business style suits your financial planning needs.

And don't forget to ask your potential financial planner about his or her fee. Is it based on a fixed hourly rate, a percentage of your funds under management, on commissions from selling you financial products or a blend of fees based on various services?

Performers, like athletes and other celebrities, are frequent targets for investment scams, not only because they make sizable amounts of money, but because people with high incomes often don't pay attention to their finances. When money is coming in, it's easy not to worry about it.

Above all else, be careful. Even if you use the services of a financial planner, always be closely involved with your finances and educate yourself about money management issues. After all, it's your money and you earned it the hard way — protect it with the attention it deserves.

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