What do Toni Braxton, Lady Gaga and 50 Cent have in common? They all earned mega millions—and then went flat broke . Unfortunately, Aaron Carter, the 28-year-old singer and kid brother of Backstreet Boy Nick Carter, can relate to their money troubles. On Spike TV’s reality show “Life or Debt,” he admitted that despite filing for Chapter 7 bankruptcy in 2013, he’s already over $150,000 in the hole.
“Financially I’m in a terrible position,” he tearfully told host Victor Antonio , a business consultant who’s run multi-million-dollar companies and teaches people to treat their personal finances like a business. “It has been really difficult for me. I want to have a life set up for myself…I can’t tell you how badly I want to have a home.”
We spoke with Antonio about his tough-love money philosophies, the inside scoop on how Carter ended up practically penniless—and what we can learn from his mistakes.
What does it mean to manage your money like a business, and how do you teach people on “Life or Debt” to do it?
Step one is to know your numbers —what’s coming in and going out. The numbers serve as a reference point like a stake in the ground. I had Aaron make a profit and loss sheet for his personal finances. We also brought in a forensic accountant and figured out that Aaron was making $34,000 a month, but it was going right back out the door. There were so many people with their hands in the pot, spending money on who knows what. Once you nail down your numbers, where do you go from there?
In “Life or Debt,” I talk about the “magic number,” which is the amount you need to make in order to stick to this rule. If you aren’t bringing in enough, you have two choices, just like a business: Either cut costs or increase revenue. To reduce costs, one strategy is to identify your priorities. People generally list things like their kid’s college fund, not stressing out about money when they retire and [having] a great quality of life. That helps you decide where your money gets allocated. I worked with one family who had a Tesla that cost $1,000 a month. When I told them to sell it, they pushed back. But I reminded them that they told me their priority is their kids—not their car. When it comes to increasing revenue, so many people are under-earners . We taped one episode with a single mom who had eight jobs, was working 18-20 hours a day and was broke. I told her to quit seven and keep the one she was good at and that made her money. It completely transformed her; she blew it out of the water. You also assign job titles for home life.
Once you have clearly defined jobs, things won’t slip through the cracks. Plus, your communication improves. You won’t feel weird asking your partner how much you spent last month if she’s the CFO. She should be able to spit that figure back at you. Of course, single people like Aaron have to handle everything on their own. When we made him the CEO of his own business, you could see his chest swell up because he suddenly had personal responsibility. His business manager had been undermining his confidence, telling him that he wasn’t good with numbers in order to keep him in a state of dependence. As a result, Aaron thought money management was rocket science. But he proved to himself that he could do it. In a very dramatic, heavy scene, he fired his business manager. Anything else?
Finally, assemble a board of directors made up of people you respect that you check in with periodically to make sure you’re staying on track. Aaron reported his numbers to his sister Angel and brother Nick every week. How is Aaron’s financial situation similar to others you’ve worked with in the past?
What’s the most important thing we can learn from his mistakes?
How can someone get back on track if they do find themselves deep in debt?
Once you face the facts, you can figure out a plan, whether it’s using the snowball effect [paying the smallest debts first, which increases motivation ] or paying off the highest interest first. Some people consolidate their debt or attempt a settlement, although their credit score will take a hit.
Shifting gears, tell us about your own experience managing money. What’s the best financial advice you ever got?
Back then, I had a $357 monthly payment on a Mazda RX7. I never made that mistake again. Now I drive a 16-year-old Volvo that has 200,000 miles on it and is in mint condition. A friend recently told me I should get a Mercedes. Why? I have a great car, and it’s paid off. I pay $20 a month for insurance. I was raised very poor. My family lived near the inner city projects and relied on food stamps. When you grow up with scarcity, you are fearful and just want to secure things. Harold’s message about frugality made a lot of sense to me. So that’s my philosophy: Live for yourself and don’t try to impress other people.
What was the biggest money mistake you’ve made?
When the market began collapsing in 2007, a lot of my investments were consolidated in tech stocks, which took a big hit. I should have been more diversified.
What do you consider your smartest investment?
When you are so loaded down with debt that all you can think about is how to pay your bills, you can’t pursue your passions and do all the things you want to do. That’s what I call the poverty trap. Debt is a dream killer. Once you have zero debt, all of a sudden you can make different choices, and that’s powerful.