Professional athletes sometimes make as much money in a week as other people might make in a year. With that level of income, how is it that so many recently-retired athletes face financial problems? With 78% of NFL players and 60% of NBA players filing for bankruptcy within just a few years after retiring,1 it’s a real concern that’s worth addressing.
So how does this happen? It’s a great question, and one that we are excited to shed some light on. Read on to learn about five of the most common financial mistakes that professional athletes make.
Mistake #1: Not planning for the long term
The average career of an NFL athlete last 3 years. Other sports are similar. So what does this mean for the athlete? Those paychecks, regardless of how large they are, won’t last forever. Athletes need to think about how to fund the rest of their lives beyond the present. Some athletes have done incredible jobs with this through endorsements, investments, or even new careers in a different industry.
Mistake #2: Not building a strong enough emergency fund
Having enough money in savings to cover your expenses for a period of time is crucial to anyone’s financial success. For athletes, this is especially true. Injuries, trades, offseasons, and a variety of other factors can slow or stop incoming paychecks. Having a solid emergency fund allows athletes you to get through these periods. For more information on this, visit our Emergency Fund page to learn more about how to build your emergency savings.
Mistake #3: Spending too much
Athletes sometimes earn between $100,000 and $200,000 (or more) per month. This amount of income makes it easy to justify buying expensive cars, houses, watches, or clothes. But it’s important to spend less than you make and to keep yourself financially secure. This relates back to first point above: planning is key.
Mistake #4: Putting your eggs in one basket
How often do you hear about the importance of diversification? Probably a lot, because it’s such a good idea. If you tie all of your income up in one place, one bad event could wipe you out. Instead, mitigate the risk.
Mistake #5: Not considering the full impact of taxes
With income come taxes. And the higher the income, the higher the taxes can be. Plus, athletes often play in states across the country, and this can make state income tax very tricky. You may be subject to the “jock tax,” even if you live in a state without income tax. All in all, taxes can eat up a sizeable portion of an athlete’s income; if you don’t account for taxes properly, you may find yourself short on the cash you thought you had.
Do you have questions about any of these points? If you have any questions or want more information on how you can protect your finances, contact us below!
1From American Bankruptcy Institute
Material discussed is meant for general informational purposes only and is not to be construed as tax, legal, or investment advice. Although the information has been gathered from sources believed to be reliable, please note that individual situations can vary. Therefore, the information should be relied upon only when coordinated with individual professional advice.