For as much money as the average professional athlete makes, there’s relatively little counsel on how to properly spend, save, and invest. As a result, many pro athletes fail to maximize financial opportunities and end
For as much money as the average professional athlete makes, there’s relatively little counsel on how to properly spend, save, and invest. As a result, many pro athletes fail to maximize financial opportunities and end up making costly mistakes that suppress their ability to secure financial freedom in retirement. But all it takes is a few simple steps to flip this script.
Why Do So Many Pro Athletes Go Broke?
Three-time Olympic gold medalist Marion Jones was making $7 million per year when she was indicted on several counts of check fraud and IRS forgery. Not only did she lose all of her medals, but she spent six months in jail and was forced to file for bankruptcy.
At one point, Mike Tyson was worth $400 million. Then after a string of poor personal and financial decisions, he woke up one morning to $700 in his bank account. And while he has recovered in recent years, he’s worth just a fraction of what he was worth at his peak.
Allen Iverson made over $200 million from his NBA career and related endorsements. But when a jeweler recently took him to court to receive the $860,000 the former all-star athlete owed him, it was revealed that he didn’t have the money to pay the jeweler. In fact, he didn’t have anywhere close to that amount, which is why the judge ordered his bank account to be seized.
Dennis Rodman, Vince Young, and a slew of other professional athletes have found themselves in the same boat over the years. And while these are extreme cases, they’re indicative of a culture in which professional athletes are never taught how to manage money.
If you’re a professional athlete and you want to avoid the same financial demise, it’s important that you step up and take action while you still have a healthy income.
3 Smart Money Management Tips
Every situation is different. You might be making the league minimum, or you could be bringing in an eight-figure annual salary. Either way, the following money management tips will help you succeed:
Avoid Lifestyle Creep
There’s a temptation to let your lifestyle creep up every time you get a pay raise or new contract. The problem with this approach is that you won’t be able to keep up.
If you made $400,000 last year and you’re making $900,000 this year, you can’t just increase your expenses by $500,000. There will eventually come a time when you retire, and your income goes to zero. If you aren’t careful, you’ll end up in a situation where your lifestyle is so lavish that you eat up your cash savings in a matter of months.
The better strategy is to create a rule. For example, you might agree that for every raise you get, you’ll only spend 25 percent. The other 75 percent goes to a variety of savings and investment vehicles.
Save as Much as You Can
Now is the time to save cash. With the amount of money you’re making, putting away 20 to 25 percent of your earnings into safe savings vehicles like money market funds, CDs, or health savings accounts can leave you with a massive nest egg when you finally reach retirement age.
Invest in Cash Flowing Assets
Your playing days will eventually come to an end, after which you could still have 50, 60, or even 70 years left to live. So no matter how much cash you have saved up, it’s going to be hard to make it last. (Particularly if you live a lavish lifestyle.)
One way to make your money last longer is to invest in cash-flowing assets. Try your hand at real estate investing. By putting your money into cash-flowing properties, you could potentially make thousands of dollars per month for the rest of your life. Don’t want to deal with the time-consuming aspects of collecting rent and unclogging toilets? Hire a property management service to do the heavy lifting for you.
Putting it All Together
Now’s a good time to sit down and outline your financial goals. Where do you want to be in five, 10, or 20 years? How much money do you want to leave your children? What lifestyle is considered sustainable? How much do you want to work in retirement?
The more you think about the future, the more you can plan for what lies ahead and strategically architect a retirement that will make you feel happy and satisfied.