I’ve always been fascinated to learn how professional athletes handle their finances after their playing days are done. Sadly, many such athletes squander their fortunes and wind up with little more than a huge pile of debt. Whether they survive on a pension, develop new entrepreneurial skills, or find themselves in financial ruin, there are many lessons that we can learn from professional athletes.
Here are a few examples and financial lessons that we may all be able to benefit from knowing.
Your income is your most important asset
The career of a professional athlete is often short-lived. The average career in the NFL is only three years, with many careers being cut short by injury. Thus, while their income is one of a pro athlete’s most important assets, their prime earning years don’t last very long.
Believe it or not, your income is also your most important asset. It’s more important than your home’s value or your investment portfolio. It must be protected at all cost so do yourself a favor and protect it with disability insurance. Also, if you have family and loved ones who depend on your income, you should have life insurance to protect them should you die prematurely.
If it’s too good to be true, then it probably is
The age old adage rings true whether you have just a few dollars in your pocket or millions. If something sounds too good to be true, then it almost certainly is. Many pro athletes have invested in failed business ventures and get rich quick schemes in hopes of earning the kind of money they grew accustomed to when playing. Even greats like Sandy Koufax fell victim to fraud. Though you may have a lot less at stake, you still need to filter your opportunities carefully and avoid being taken advantage of.
Find good, trustworthy financial advisors
I’ve always joked that randomly picking financial advisors out of the phonebook based on slick advertising presentations, or using untested family friends can be a quick recipe for financial disaster. Everywhere you turn, you hear sad stories of professional athletes being used by unscrupulous advisors.
Even though league officials from the NFL, NBA, and others have gotten smarter and set up programs to help young players with their finances, there are still many cases in which financial advisors take advantage of athletes and their newfound wealth. Finding a financial advisor you can trust takes a lot of careful planning and consideration. It’s not something to be taken lightly. Do your homework and ask lots of questions.
Spend less than you earn
According to MSNBC, over 60% of NBA players wind up financially insolvent within five years of retirement. And 78% of all NFL football players are broke within two years of hanging up their cleats. While everyone’s situation is different, most of their financial troubles can be traced back to spending more money than they earn.
Bankruptcy cases cut across a variety of professional sports and stars. Such famous athletes as boxer Mike Tyson, baseball player Lenny Dykstra, figure skater Dorothy Hamill have all been bit by the bankruptcy bug. This phenomenon applies to all socio-economic classes in the “real world” just like it applies to athletes across many different sports. Whether you’re rich, poor, or middle class, there’s a huge temptation to spend more than you can truly afford.
Everyone needs to have a will
Even the rich and famous need to plan for tragic possibilities. For example, when NFL star Steve McNair was killed in 2009 in an apparent murder-suicide he died without a will. McNair had a wife and two children, as well as two other children with another woman. Without a will, McNair’s widow was forced to file a petition in probate court laying out his entire life for the world to see. And the existence of two other kids only complicated matters.
The bottom line is that you, like just about everyone else, need to have a last will and testament to protect your family, ensure your privacy, and make sure that your last wishes are carried out. If not, you’re leaving things to chance and letting the courts make decisions for you. Having a will in place also helps simplify situations related to owning real estate in multiple states, having children from other marriages, etc.
Take care of yourself first
There’s a reason that the airlines tell you to put the oxygen mask on yourself before you help those seated around you. You’re no help to anyone if you’re struggling to breathe. The same is true with your finances. Many professional athletes fall into the trap of helping friends and family members with their new wealth before even thinking of saving for their own retirement. This can lead to financial disaster.
Even middle class households are guilty of this when doing things like saving for our children’s college education before fully funding our retirement accounts. Most financial experts recommend saving for retirement before dealing with college savings. You can’t borrow money for retirement, but your kids can get scholarships and student loans to cover the cost of college.
The best mistakes to learn from are the ones that others have made before us. Whether they’re pro athletes or just regular Joes, the trials and tribulations of those around us can be great learning opportunities.