You don’t have to be told that your career is unlike any other. Not only do you begin your career at an early age, but you also earn the type of income individuals will work an entire lifetime for in a much shorter period of time. But, great privilege can present great challenges when it comes to making your income last over your lifetime.
Because of the physical nature of your profession, your career won’t last as long as the traditional types. If you are lucky and physically well, your athletic career may extend into your forties, whereas the standard individual will likely work into their sixties and seventies. The income you see in your twenties and thirties may be a lot by anyone’s standards, but not quite as much when amortized over time.
Simply put: you may earn more now, but that income won’t last forever. This is why so many professional athletes struggle financially later in life: they spent while the paychecks were coming in with no foresight about what would happen once they retired from professional sports.
Also see Harbor West related article: Top Financial Hazards for Professional Baseball Players and How to Navigate Them
Saving and investing for the future, then, is of paramount importance for professional athletes. Yet, so few professional athletes succeed. But why?
Contending with Human Nature
As humans, we are hard-wired to approach financial decision-making based on our wavering emotions, rather than steadfast logic. We make choices that make us feel good in the moment, even if it means it puts our financial future at risk. But, we don’t always have to trade one for the other. We can reward ourselves for our hard work and enjoy some of the wealth we earn while preparing for the long-term. The key is to spend (and save) your wealth mindfully, rewarding both your present self and your future self at the same time.
1) Begin with the End in Mind
Deciding how much disposable income you have to “play with” in the present will be dictated by how much you need to invest for the future. In order to figure this number out, you’ll need to inventory your assets, debts, and future goals. This information will allow you to break down and allocate your income to the right spots each time you get paid.
In this process, you’ll need to ask yourself:
Do you anticipate having any other sources of income?
Do you have any investments?
How long is your current contract?
How long do you reasonably plan on earning your present income?
How is your health?
2) Set Limits
You don’t have to deprive yourself of all of life’s luxuries—and you shouldn’t. When we tell ourselves we can’t have something over and over again, we are more likely to “fall off the wagon” and splurge later down the road. Rather, decide how often you can afford to treat yourself to special purchases, vacations, or experiences. It is when these expenditures run unchecked that problems arise.
Those who are the most successful with their money know how to maintain a good balance between the “wants and needs” of today with those of the future.
3) Curb Your Natural Instinct to Loan Money to Others
One of the biggest hurdles we see athletes face is deciding when, if, and how much they should lend or gift to their family members. It might feel natural once you begin earning a significant income to give back to those who raised you or provided you in some way growing up, but can be a slippery slope. One-time financial assistance quickly turns into prolonged financial support which endangers the financial health of the athlete earning the income.
While the intentions to help out are all well and good, the loaning and gifting can sometimes get out of hand. You will be a better support system to your family if you preserve your wealth and extend its reach for yourself over your own lifetime.
No matter how much income you earn, financial security isn’t achieved by saving a little here and there. Building a framework for financial security means preserving portions of your income today and allowing it to grow for decades on end to provide for you in the future.
Invest in Yourself
There are many I’s to dot and T’s to cross when it comes to making a financial plan to save, invest, and build wealth for the future. For many professional athletes, the process can feel overwhelming, especially amongst the many commitments already required of their time.
At Harbor West, we understand the challenges that you face as a professional athlete. From saving and investing to negotiating equitable signing contracts and tax planning to keep the most money in your pocket, we specialize in working alongside athletes to preserve their wealth and enjoy themselves in the process. If you are a professional athlete and need assistance with your finances, we invite you to schedule a no-commitment consultation with us today. We can meet in person or over video conference and will provide you with some information to take home and evaluate after our call. We look forward to hearing from you.
Disclaimer: This information is provided for general purposes and is subject to change without notice. Every effort has been made to compile this material from reliable sources; however, no warranty can be made as to its accuracy or completeness. Before acting on any of the information, please consult your Financial Advisor for individual financial advice based on your personal circumstances. Neither Harbor West nor Geneos Wealth Management, Inc. provide tax or legal advice. Harbor West is a division of NorthEast Community Bank. Securities and advisory Services offered through Geneos Wealth Management, Inc. FINRA/SIPC Investment Advisory and Financial Planning Services offered through Geneos Wealth Management, Inc. Investments are not FDIC Insured. Investments are not deposits of the financial institution and are not guaranteed by the financial institution. Investments are subject to risks including loss of principal.