50 Weird Ways People Go Broke

If you’ve ever looked at someone rich and thought you’d be set for life if you had all that money, maybe you would — or maybe you wouldn’t.

There’s no such thing as having too much money to ever go broke.

Financial security is determined by financial decisions, meaning everyone is susceptible to financial ruin.

That’s why GOBankingRates looked for the many strange ways to go broke, so hopefully you never will.

 

1. Getting An Inheritance

Some people who inherit money spend irrationally. They go on shopping sprees, take vacations and immediately start upgrading their lifestyles.

“I’ve seen people want to buy everything from yachts to mansions that are completely out of budget after receiving an inheritance,” said Elle Kaplan, CEO of LexION Capital, a New York-based financial management firm. “There’s going to be a huge rush of emotions when you suddenly have money — but those are your worst enemy.”

Failing to separate rational thought from short-term choices — that’s how to go broke.

2. Winning The Lottery

Hitting the jackpot is supposed to be the key to financial freedom, but 44 percent of lottery winners end up going broke within five years, according to Statistic Brain.

“It’s incredibly strange and unfortunate that individuals who suddenly acquire enormous amounts of wealth would’ve been better off had they never gotten that winning ticket in the first place,” said Kaplan.

3. Betting On A Concert

When Lady Gaga embarked on her Monster Ball tour, she had $3 million to her name and spent it all creating the stage to get the attention of Live Nation CEO Arthur Fogel. It left her broke, she revealed in an interview on “Entertainment Tonight.” Fortunately, her stint in the poor house was short-lived. “Ultimately, Fogel got Live Nation to write me a check for $40 million, and it changed my life and the life for my whole family,” she said.

4. Getting Involved in a Pyramid Scheme

Pyramid schemes are illegal, promising big profits based primarily on recruiting others to join their program, rather than from a real investment or sale of goods, according to the Federal Trade Commission. For example, by the time one company, Fortune Hi-Tech Marketing, was deemed a pyramid scheme and banned in 2014, it had attracted over 350,000 consumers and over 98 percent of them lost money, according to the FTC. If you get lured into a pyramid scheme and have invested money you can’t afford to lose, you’re almost guaranteed to go broke.

5. Playing Banker

If you get a lump sum of money, don’t become a banker or a lender, said Edwin Cruz, owner of Prosperity Financial and Insurance in Deltona, Fla.

“I know a couple that was awarded a large sum of money in a settlement. The children and other family members had a lot of business ideas. None of those deals went well, and the couple went broke in about five years,” he said. “Invest wisely because money can disappear quickly.”

6. Gambling Your Money Away

For some people, gambling is recreation. For others, it starts out that way, but turns into a financially crushing addiction. It’s not unusual for gambling addicts to drain savings, raid business accounts, write bad checks and spend their children’s college tuition. On top of that, many skip work to gamble, according to Georgia Gambling Help. Although their lives and finances crumble, many continue playing until they’re broke. The social cost of gambling problems like job loss and bankrutpcy was estimated to be $7 billion in 2013, according to the National Council on Problem Gambling.

7. Entrepreneur Syndrome

Many financially successful people go broke trying to get richer. They start businesses they don’t need and don’t have the experience to run. Washington Post columnist Michelle Singletary called it “entrepreneur syndrome.” In an article, she cited NFL player Warren Sapp as an example of this. His bankruptcy filing, submitted in March 2012, listed $6.5 million in assets and $6.7 million in liabilities. His lawyer told the Tampa Bay Times that Sapp filed because of his business debts.

8. Going To Jail

Going to jail definitely leaves people broke. Home loans, cars loans, child support and other debts don’t pay themselves, but you still owe. And that outstanding and mounting debt can cause a person to lose everything.

“It’s smart to make a financial plan before you go and perhaps even file bankruptcy to give yourself a clean start when you get out,” said Randy Tarpey, owner of accounting firm Sickler, Tarpey and Associates. “Otherwise, you can end up going to financial jail for longer than real jail.”

9. Selling Drugs Without Paying Taxes

Tarpey encountered an IRS auditor who had a two-year assignment going to jails to file convicted drug dealers’ tax returns. With back taxes, fees and penalties, some of those people were bound to owe the IRS substantial amounts of money when they were released. If they weren’t already destined to be broke before, a fat tax bill raised the odds.

“Anyone who is convicted, and therefore on record, as committing a crime where they made money, should file taxes. Not filing that income is a separate crime and a separate liability,” said Tarpey.

10. Getting Divorced

Divorce sometimes leaves one or both exes broke, as they often have less income and higher expenses when living apart. In a 2012 New York Post interview, reality TV Star Brandi Glanville revealed that it happened to her after splitting from Eddie Cibrian. She said they were living above their means, which left few assets to split. Once on her own, she had little money and no credit.

11. Bad Business Partners

Choosing a bad business partner is a common reason people go bankrupt, according to Catherine Cooper, founder of Catherine Cooper Qualitative Research. One partner can run up credit, drain the business and essentially run it into the ground. When the unsuspecting partner discovers what’s going on, there’s no money and a mountain of debt. Even if you were unsuspecting or deceived, you’re responsible for what your partner does, she said.

12. Being A Cosigner

In many cases, people go broke cosigning for a family member or a friend. Michael Eckstein of Eckstein Tax Services recalled one woman in her 20s who co-signed for her aunt’s loan. The aunt stopped paying, and her niece was left to pay the loan, plus interest, to avoid ruining her credit at a young age.

“Cosigning a loan might seem like a simple favor, but it can land you in some serious trouble,” Eckstein said.

13. Forged Credit Applications

Having loved ones secretly open accounts in your name can lead to your financial downfall. In many cases, the victim doesn’t find out until the unpaid creditor starts taking action. There are legal avenues that can prevent the victim from being liable for the debt, but when the perpetrator is a family member or friend, some people don’t want to get their loved ones into trouble. Those who can’t afford or maintain payments on the debt ultimately face judgments, liens, garnishments and even bankruptcy.

14. Over-Indulging Single Moms

One mom got a loan to take her child to Disneyland with friends for his seventh birthday, said Cooper. Another woman booked a weekend at a fancy hotel with room service to celebrate her child’s graduation from elementary school. And she put it all on a credit card.

“A lot of single moms stick their necks out and do crazy things to give their kids whatever they want,” said Cooper. “But since kids don’t have an end to what they want, these women end up broke. These women are often driven by memories of their own deprived childhoods, so they over-indulge their children at their own peril.”

15. Having A Cocaine Habit

Some people start using cocaine for fun, but it’s highly addictive, the high doesn’t last long and many people escalate to using several grams a day. An eight ball, which is 3.5 grams, costs $150 to $250, or up to $91,250 a year, according to the Pat Moore Foundation, a drug treatment center. That’s clearly a route to going broke, considering the average household income is only $53,657, according to the U.S. Census Bureau.

16. Dog Bite Lawsuits

A vicious dog can be costly. On average, dog bite claims cost homeowners $32,072 in 2014, according to data from the Insurance Information Institute and State Farm. Homeowners insurance often covers the damages, but if the dog owners are uninsured or under-insured, they have to pay out of pocket.

17. Failed Restaurant Dreams

Sixty percent of new restaurants fail in the first year, and 80 percent close by the fifth year, CNBC reported. Those failures leave a lot of people broke, and owning an empty restaurant building makes the failure a greater financial disaster, said Tarpey. A Pennsylvania police officer bought a pizza restaurant for $450,000, Tarpey recalled. He tried to run it with his family, but it failed. In addition to losing all his money, he had an empty building that didn’t sell until years later — and only for a fraction of the cost. “I’ve seen this mistake repeated a lot over my career,” said Tarpey.

18. Investing in Independent Films

Investing in independent films is a gamble, and in the instances Tarpey has encountered, most people lose. In one case, there was a $10 million production out of Philadelphia, and everyone lost their money.

“It was a bunch of rich friends, then not-so rich friends,” he said. “People who invest in independent films often believe in the movie and the production, but those people aren’t thinking about real channels for profitability.”

19. Dog Fighting

NFL player Michael Vick’s role in an illegal dog fighting ring sent him to prison. He filed for Chapter 11 bankruptcy on July 7, 2008, according to a U.S. Department of Labor press release. Vick came out of prison in 2009, owing his creditors about $18 million. He was fortunate enough to return to playing football and eventually was able to dig his way out of debt. But he did it by living on a restrictive budget of $300,000 a year, reported ESPN.

20. Inheritance Scams

It’s not uncommon to find people who lose everything because of advance fee schemes, Tarpey said. One gentleman liquidated his entire IRA trying to help someone in Nicaragua allegedly transfer an inheritance to the U.S. The victim transferred a couple thousand dollars at a time for travel fees, bank fees and whatever the scammer asked. And, in return, he was supposed to get repaid plus make a profit. Instead, he was broke and got nothing. “It was a little bit of greed and a little bit of trying to help someone out,” said Tarpey.

21. A Failed Alternative Housing Project

Author William Seavey’s plan to build a straw bale house in Washington ruined his life. He had licensed the property, had interested parties from three states and Canada there ready to build and was set to pour the foundation. But, the building officials stepped in and put an end to the project, he wrote in an article for SanLuisObispo.com. Seavey said he was left without a place to house his business, and since he had invested all his money in the project, he was also broke.

22. Overspending On Reality Show Persona

What people saw on the reality show “The Hills” was fake, one of the show’s stars, Spencer Pratt, told The Daily Beast. But he went broke trying to make it look real. He was spending money as fast as he earned it on things like a million-dollar wardrobe he didn’t wear and a monster truck he drove only once for an episode. At the time of the 2011 interview, he said he had no real job and was living with his parents because of the free rent, the Daily Beast reported.

23. Excessive Plastic Surgery

Another star of “The Hills,” Heidi Montag, also ended up broke and living with Pratt’s parents, according to the Daily Beast interview. Excessive plastic surgery consumed a lot of her money. Montag had three procedures within the first year of the show airing, and later she underwent 10 procedures in one day, according to The Daily Beast. This was one of the ways she overspent and went broke.

24. Dreams Of A Music Career

Lots of people dream of making it big in the music business, and some people make serious financial mistakes to pursue them. “The Hills” co-stars are, again, examples. Pratt told The Daily Beast that they spent nearly $2 million hiring big-name writers, producers and engineers for Montag’s pop music career, which didn’t take off.

25. Having A Shady Tax Shelter

A tax shelter is supposed to be a legal way to avoid or reduce taxes. Country singer Willie Nelson plowed money into one, and it left him owing the IRS $16.7 million, which he couldn’t pay. Most of Nelson’s assets were eventually seized and auctioned off — except his guitar, Trigger, Forbes reported. Nelson claimed he followed the advice of his accounting firm Price Waterhouse. If so, he’s an example of going broke due to bad professional advice.

26. Not Paying Back Taxes

People owe back taxes for many reasons, ranging from honest mistakes and lost paperwork to willful ignorance and tax evasion, said Eckstein. In most cases, the IRS just wants the money and will work with you. But if you’re blatantly deceptive, don’t stick to payment plans or ignore collection attempts, the IRS can take action that leaves you broke, such as seizing your accounts and garnishing your wages.

27. Buying Too Many Houses

Gifting houses to people who can’t afford them isn’t a good financial decision, said Randall Janis, founder and CEO of Clear Income Strategies Group. One former Super Bowl pro bought houses for his mother, father, his kids and his friends. Plus, he had several houses himself. Once he got out the league, there were all these properties in the possession of people who couldn’t maintain them, which left him with a serious financial dilemma.

“Just because you buy a house in full doesn’t mean you get to keep it. There’s property tax, upkeep and so forth, and somebody’s got to pay for it,” said Janis.

28. Losing Endorsements

Endorsements are a huge source of income for many celebrities and athletes. In 2015, professional athletes were expected to earn over $836 million in endorsements, based on opendorse data compiled from Forbes. The problems come if they spend everything they make, and when the tides in their career change — they’re not as popular anymore or they leave the league — those deals go away. Some athletes aren’t prepared to make an adjustment to their standard of living, and that’s one of the ways extremely wealthy people run out of money, said Janis.

29. Living For Fun

During a 2010 appearance on “The View,” Mike Tyson said he was “completely broke” and “destitute.” This is a man who once had $300 million, lived in mansions and kept Siberian tigers as pets, The New York Times reported. When asked how the financial downfall happened, his reply was: “I had a lot of fun.”

30. Financially Tied To Your Car

A lot of people go broke because of their cars, said Janis. He told a story about one man who was driving a BMW with a $913 per month car payment, which he could barely afford. Add a couple hundred dollars in gas and the insurance, all-in he was basically paying $1,600 a month for a car. It was more important to him than his house, so he downgraded where he lived to keep his car. In the end, that car destroyed his credit and left him broke because he couldn’t keep up his lifestyle and keep the car, said Janis.

31. Ignoring Professional Advice

When your pipes need work, you call a plumber. When your car needs work, you call a mechanic. But when it comes to money, a lot of people don’t call a financial professional — or they call them but ignore the advice — and they end up broke, said Janis.

“A client came in in 2008, he had $1.1 million in the bank,” he said. “I offered him some options, but he decided to continue handling the money his way. He came back in 2010, and only had $680,000 — basically enough to last seven more years at the rate he’d been spending. He was in trouble, and he knew it.”

32. Having An Affair

Cheating can leave your bank accounts empty. Depending on how long the affair lasts, the person who is cheating might spend hundreds or thousands on dates, gifts, hotel rooms and flights. Some people even pay their lover’s bills. The average affair lasts six months and costs $444 a month, or $2,664 in total, according to a survey by a U.K. retail company, CNBC reported. Meanwhile, factor in a suspicious spouse or partner who starts forking over cash to investigate what’s going on — a private investigator told CNBC that he charged $100 per hour plus expenses — and the costs really start to add up. While all of this extra spending is occurring, there are still household obligations to cover. Infidelity is a prime example of how emotion-driven decisions make people go broke.

33. Living On Credit Cards

Using credit cards like free money is another way people go broke, explained Cooper. People will get five or six credit cards with $5,000 or $10,000 limits. They’ll feel like they have a lot of free money, and they start living the good life. But credit runs out and needs to be paid back, and that’s where the problems come in. Managing minimum payments often turns to juggling payments between the creditors that are the most persistent. Interest and finance charges start piling up, and the debt won’t go down. “A lot people end up exhausted and file for bankruptcy,” she said.

34. Becoming A Real Estate Investor

A MarketWatch article outlined the case of an executive who had 12 properties valued at $3 million. When the market tanked and her renters moved out, she didn’t have money to cover the mortgages, repairs and maintenance. She lost all but one property to foreclosure and short sales, and had wiped out her retirement savings. Get lured into real estate without the proper experience or adequate capital, and it’s a countdown to financial ruin.

35. Paying Extra Taxes When You’re Broke

Typically, if you have to ask your credit card company to forgive a portion of your debt or you default on your mortgage, you’re already going broke or already insolvent. But tax form 1099-C reports canceled, forgiven and discharged debt as income — and the taxes can be quite substantial, said Tarpey.

“Re-negotiating your debt then paying extra taxes is like taking one step forward and two steps backwards,” he said.

36. Taking Predatory Loans

Hocking your car for cash or getting a payday loan can make a bad situation worse. To repay these high-interest loans in a single payment, the average title loan borrower gives up 50 percent of the average gross monthly income, and the average payday loan will consume 36 percent of the average borrower’s paycheck, according to The Pew Charitable Trusts. A lot of borrowers can’t afford that, so they get caught in a cycle of renewing these loans, which digs a deeper and deeper ditch.

37. Overspending On Pets

The Sherman Law Group in Roswell, Ga., featured a question from someone who had over 43 pets at one point, including dogs, cats, birds, snakes, goats, horses and mice. Trying to pay the animals’ veterinary bills left the person struggling to pay for food, mortgage and car payments. The law group responded that they have had several clients who’ve gone broke from pet costs, but that such debts could likely be discharged in bankruptcy.

38. Maintaining An Entourage

Janis held a workshop in which one of the participants had a 15-person entourage, and he paid for almost everything for them, including living expenses, cars and vacations. Basically, he was paying for their friendship and when the money disappeared, they were gone, he said. An entourage is a source of ridiculous spending, and it’s definitely one of the contributors to celebrities going broke, said Janis.

39. Hiring The Neighborhood

Rapper MC Hammer reportedly earned $33 million in 1991, after the success of his album “Please Hammer, Don’t Hurt ‘Em,” according to CelebrityNetWorth.com. But, he filed for Chapter 11 bankruptcy in April 1996, according to court filings. On the “Opie and Anthony Show,” MC Hammer said he went through the money “giving back to the community.” He was paying 200 employees. It was the crack era, violence was rampant and death was a regular thing in his neighborhood. So, he said he took people out of his community and gave them jobs. Unfortunately, the strategy was ultimately unsustainable.

40. Living By Accountant

One of Janis’ financial workshop participants has an accountant who sends him $46,000 per month. He doesn’t know how much money he has in the bank, all he knows is he was a star, and he had a $35 million contract. But if you do the math, he’ll spend about $6 million in 10 years.

“The money’s going to run out because it’s not being handled correctly,” said Janis. “Always know what you have. You can’t assume someone somewhere is looking out for your best interest.”

41. Allowing Authorized Users

Adding an an authorized user to your credit cards is risky and could lead you to the poor house. Unlike a joint account holder who is also responsible for repaying debt, an authorized user has the right to spend to the end but isn’t responsible for paying 1 cent. You’re on the hook for all bills.

42. Bankrupt By Murder Trial

High-profile murder trials can leave a person broke. Two years after being acquitted in 2011 for the murder of her daughter, Casey Anthony reportedly filed for bankruptcy. Anthony said she was being supported by “the kindness of others” and donations from strangers, reported ABC News. In her bankruptcy filing, she claimed to have $1,084 in assets, including less than $500 in cash and nearly $800,000 in debts. Of that, she owed $500,000 to a defense attorney, $145,660 to the Orange County Sheriff’s Office for investigative fees and $61,505 in court costs, according to court documents posted by MyNews13.com via the Los Angeles Times website.

43. Investing In Penny Stocks

All investments have risks, but with penny stocks the risk level is akin to gambling. Timothy Skyes is a seasoned trader who turned $12,415 to $1.65 million, according to Forbes. But even he admitted on his own website to losing his money roughly 30 percent of the time. People who ignore the odds and stake money they cannot afford to lose, such as the mortgage or their savings, are destined to go broke. Penny stock investors should be prepared to lose their entire investment, the U.S. Securities and Exchange Commission warned.

44. Overwhelming Medical Bills

Medical bills wreak havoc on people’s finances, especially those who have chronic and debilitating conditions. Many people who are overwhelmed by their medical debt run through their savings, turn to credit and take out loans trying to manage their households and health care. Despite their efforts, they might still end up broke. A poll conducted by NPR and its associates in 2015 asked people how health care costs had impacted their finances. Twenty-seven percent reported being unable to cover basic necessities, such as food, heat or housing, and 7 percent had filed bankruptcy.

45. Not Having Savings

If a $400 emergency popped up, 46 percent of people would struggle to pay for it, according to a recent survey by the Federal Reserve. And, a recent GOBankingRates.com survey found that 62 percent of Americans have less than $1,000 in savings. A lot of people live on the brink of financial disaster, having little or no savings. So it only takes one unexpected expense, such as a major car repair or leaky roof, to push them over the edge.

46. Addicted To Video Games

“Grand Theft Auto V,” “Minecraft” and “Call of Duty: Black Ops III” were among the best-selling video games in the U.S. earlier this year, according to game retailer GameSpot. Without a doubt, gamers are dedicated to their craft. But for some players, gaming can become an addiction. Gaming addiction can have social, physical, psychological and financial consequences, according to the Illinois Institute for Addiction Recovery. Addicted gamers tend to neglect many aspects of real life, including their finances and jobs. For example, one sign of addiction is when gamers start staying up all night and are late to work or absent, which can potentially lead to a job loss — and subsequently going broke, USA Today reported.

47. Sending Money To Your Internet Love Interest

Online dating scams can be easy to fall for, especially when a thief hones in on a victim who’s looking for human connection — and who might be too generous for his or her own good. In an extreme case, a 48-year-old man living in Illinois sent $200,000 to someone he met online and believed to be his long-distance girlfriend, ABC news reported in 2011. In two-and-a-half years, he wired money to England, Nigeria, Malaysia and Portland, Ore. Unfortunately, he had been duped. An FBI spokesperson told ABC News that people should watch out for a “sob story” and always be cautious with money requests, even if the relationship seems to be legitimate.

48. Going to Graduate School — Twice

People typically go to graduate school to further their careers, with the hopes of increasing their income. But graduate school can also come with a hefty price tag, one the grad is often left paying off for many years. Forbes reported the story of one woman who got a master of fine arts at the University of Southern California Film School but discovered that she couldn’t command the kind of salary in film that she would need to pay her student loan debt. She then decided to enroll at Pepperdine Law School to become a lawyer, in hopes of earning more money. However, in the years following graduation, she had $300,000 in student loan debt and was struggling to get by on her new-lawyer salary of $20,000 per year. When it comes to choosing graduate school, experts recommend keeping your total student loan debt at or below your anticipated first-year salary. Otherwise, you risk going broke.

49. Calling The Psychic Hotline

Niall Rice was heartbroken when his relationship ended. So when two self-proclaimed psychics promised to reunite him with the woman, he got “sucked in,” he told The New York Times in 2015. Rice said he paid the Manhattan-based psychics over $718,000 in total for their services. This is yet another sad example of when emotions can lead you to make bad financial decisions, leaving you broke and still in search of relief.

50. Getting An Extreme Home Makeover

The ABC show “Extreme Makeover: Home Edition” took participants’ deteriorating, cramped houses and replaced them with beautiful, brand-new, super-sized homes to help them get a new start in life. These were the kind of success stories that offered some ray of hope in the midst of an economic downturn and recovery. However, these new, larger and improved homes also came with higher costs — for upkeep, taxes and utilities, the Beaufort Gazette reported. A new, higher home value reportedly bumped one family’s tax bill from $744 to $2,100 per year. Another family’s monthly utility bills for the new, larger home cost between $700 and $1,200 per month. There’s a lesson here for even modest renovations, and that’s to consider all potential costs when planning a home remodel or expansion. If you can’t cover the costs of keeping up your new home, you risk going broke.

 

Source: Go Banking Rates