Allen Iverson is just one of many professional athletes to have made millions throughout their career, only to squander most of their wealth. As per the National Basketball Players Association, more than half of former NBA players end up facing financial troubles within five years of retiring from the league. This is illustrated by Latrell Sprewell, who earned more than $100 million during his career yet faced numerous financial hardships later on. Charles Barkley is another example, though his case is a little different in that he was unable to stay on top of his gambling debts and ended up losing an estimated $10 million. The distinction between athletes who are able to sustain their financial security and those who fail is often due to the access they have to a financial advisor or money coach.
It is essential for athletes to comprehend the instability of their circumstances and recognize their vulnerability, even if they have someone managing their wealth. To guarantee financial safety, it is necessary for them to take charge of their funds, develop strategies looking to the future, and observe what their financial experts are doing.
Professional sports leagues, player associations, and universities are now introducing programs to help players grasp the value of budgeting and personal finance. The NFL even organized a four-day financial boot camp for their athletes. Similarly, the NBA Players Association has announced that financial consultants will be visiting every team to discuss matters related to personal finance and investing.
Professional sports careers are short. The average NFL career lasts 3.3 seasons. It’s 4.6 seasons in the NBA and 5.6 years in the MLB. It is estimated that 78 percent of NFL players are either bankrupt or under financial stress within two years of retirement and 60 percent of NBA players are broke within five years of leaving the sport.
And though listening to financial experts may not be the most exciting thing in the world, it's important to remember the consequences of your decisions: A financial advisor or money coach is the key to having a successful life.
Eight Financial Tips for Young Athletes
For professional athletes, managing finances is a crucial task. However, it can be overwhelming, especially for young athletes who may be tempted to go with the flow and rely on others. To make money last, athletes must follow these eight financial tips.
1. Know What You're Signing Up For
Firstly, athletes should thoroughly understand their contracts, including all clauses and stipulations, and know what's guaranteed and what's not. For instance, what happens if they get injured, and how are they protected? Athletes need to review each clause in their contract and if you don’t understand something, ask. There may be stipulations in the contracts that you weren’t aware of that may pose an issue down the line.
2. Be Aware of Your Timeline
Secondly, athletes need to know their timeline in sports and plan their finances accordingly. A smart financial coach can help create a plan for the next stage of life. How long do you think you will be in the sport? You’ll need to handle your finances differently if you plan to play for 5 years versus 10 years.
3. Have a Backup Plan
Thirdly, athletes should create a "second-career" plan, preparing for the future by thinking about their interests, passion, and pursuing them with additional training, schooling, or moving across the country. It’s not realistic to expect to be fully retired at 30. Not only would that be difficult financially, but it would also take a toll on your mental health.
4. Everyone Retires
Fourthly, it is essential to save for retirement, investing in tax-advantaged tools such as a 401k or Roth IRA. It's also wise to automate investments and not spend the money elsewhere. Keep in mind that professional athletes may earn too much to directly contribute to Roth IRAs, so consider a Roth conversion (converting money from a traditional account to a Roth) or investing in a Roth 401(k).
5. Pick Your Goals
Fifthly, besides retirement, athletes need to save for short- and long-term goals, such as buying a dream home or paying for children's college expenses.
6. Ditch Debt
Athletes should not accumulate debt unnecessarily, and before making big purchases, they should consider their long-term plans for those items. Before paying down debt, know that all debt is not created equal. Start by paying off high-interest debt and work your way down the line.
7. Living Within Your Means
Athletes should live within their means, no matter how much they earn. It's not wise to loan money to friends and family without clear expectations and boundaries. By following these tips, professional athletes can better manage their finances and ensure that their money lasts.
8. Build a Healthy Relationship With Money
Having the right outlook on money is critical when it comes to managing your finances. The attitude and emotion you bring to financial matters can profoundly shape your spending and saving patterns. Two common mindsets can be identified when it comes to money: scarcity and abundance.
Those with a scarcity mindset consider funds to be scarce and are perpetually searching for more. Conversely, individuals with an abundance mentality value what they already have and look at their current assets. It can be a challenge to shift away from a scarcity mindset, but it is possible with greater appreciation of the small things and more self-confidence. Our upbringing and history significantly shape our relationship with money, and it is important to recognize that and to work on any issues.
Aim For Financial Independence
Ultimately, your aim with money should be to achieve financial independence, to be able to pursue your passion for your sports, secure in the knowledge that you don't have to worry about money in your future. This means being aware of what you want and need, and then putting in place a plan that will enable you to get there, while you're still earning.
For more help, and personal guidance, reach out and get a money coach, who will be able to support, and guide you in taking control of your finances.
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