Financial lessons from professional athletes
Allan Iverson was once considered one of the best and highest-paid athletes in the world, earning more than $150 million dollars in his 15 years in the NBA alone. In 2012, both CBS and Forbes reported that he was in serious financial trouble and unable to pay off his debts.
Unfortunately, stories of the hapless professional athlete who is soon parted with his money are fairly common. Sports Illustrated Reports:
- Within five years of retirement, 60% of all former NBA players are bankrupt
- 78% of NFL players have gone bankrupt or are under financial stress due to job loss or divorce.
Professional athletes are often pitied as financially ignorant and unable to manage their money. But in reality, we who are not athletically talented also struggle with our finances. The average savings for a 50-year-old in 2013 is $43,797*. Not exactly a home run. So how can we be successful with our finances? By following these five tips and staying out of the traps so many people fall into.
Money is finite, spend less than you earn.
This seems overly simplistic, but people struggle with overspending. Start by creating a budget. Come on, a budget won’t kill you. Buy a budgeting system like Quicken, access free online sites like mint.com, or just write down all your monthly expenses and other bills you pay on and off. Then look at your income and spend less than you earn.
Save your money.
Be sure to set aside money regularly to create an emergency fund equal to three to six months’ worth of expenses. Then invest the balance in longer-term investments. You can’t create wealth if you don’t save.
Boring investments are fine.
Athletes are notorious for making bad investments. Private investments have a place, but public investments are much less likely to be involved in a fraudulent transaction or become worthless. Exxon will probably be around in 10 years; your uncle’s new sports bar, maybe not. Start by investing in diversified mutual funds or exchange-traded funds that buy stocks, bonds, and real estate investment trusts. Once your public portfolio grows to become a substantial part of your net worth, you can venture into riskier, less liquid investments such as private equity, energy, or real estate. Always understand your downside risk. Could you lose all your money and be responsible for other debts beyond your initial investment?
Choose your financial advisor carefully.
Good financial advisors can be a blessing and inept or unscrupulous ones a curse. Where will your advisor keep your assets? A custodian known as Fidelity or Schwab is essential. Never write a check directly to your advisor! Is your advisor accredited? Certified Financial Planner, Certified Private Wealth Advisor, and Chartered Financial Analyst are some of the more prominent designations. They have experience? Have you checked them on the SEC’s website www.sec.gov or FINRA’s website www.finra.org to look for criminal charges or disciplinary action? Have you talked to references who have worked with the counselor for many years?
Choose your spouse even more carefully.
The best way to cut your balance sheet in half is to get divorced. Choose your spouse or partner carefully. Unmarried: You may still have to divide assets if you have ever remained a married couple or lived together for a certain period of time.
Many of us struggle with the same bad financial habits as professional athletes. His tailspin is just more dramatic. Following these five basic tips will help you accumulate more money and have less stress in your life, creating a win-win situation in any game.
Stanley Bae, Michael Shockley and Mark McClanahan are managing directors of wealth management firm RGT. www.rgtnet.com