"How can someone blow all of that money?"
Be honest, you have said it or thought it after seeing a professional athlete on the front page for poor financial decisions.
Well here is how:
You can do anything.
You can buy anything.
You can create the life you want.
Yet that life will either be sustainable or could go up in flames when the checks stop.
For professional athletes, the first three years will dictate much of the financial success achieved (or not) down the road.
You see the athletes that retire in the best financial position are not always the ones that made the most amount of money.
In fact, I would argue that the biggest indicator of future financial success can be traced back to the decision an athlete makes in the first three years of their career.
Said another way, it is the ones that took wealth management as an athlete seriously.
It is at that time when you feel invincible, the checks are coming in, and the end of your career is an afterthought that you need to understand the weight of your financial decisions.
In this blog, I am going to walk through five money mistakes to avoid as a professional athlete.
Professional Athletes - The Money Mistake
We have all heard the stories and seen the stats of professional athletes losing money that they earned.
Yet, what those stories don’t show is the initial mistakes many of those athletes made that later pushed them to financial ruin.
Consider the analogy of a snowball being pushed up a mountain. Once it reaches the peak of that mountain just a gentle nudge will send it flying down the other side.
That snowball can be a cascading effect of good money moves (and collect positive outcomes) or poor money moves (and collect negative outcomes).
Seems easy enough right?
Well, remember as a professional athlete you are coming into a lifetime worth of wealth at the age of 18-25.
A time when money is plentiful but experience is limited.
The thing to realize is that snowball is starting to build from day one.
5 Money Traps for Professional Athletes
1) The Yes Man
A good agent can make or break your career.
A good financial team can make or break your entire life.
Sounds dramatic but it is the truth.
The number one thing any athlete should consider when hiring their team is who are they hiring. No, I don’t mean their experience or expertise (that matters too), what I mean is who is the person.
In the financial services industry you can break every down into two buckets:
Those willing to speak the truth, even when it is uncomfortable.
Those who are more concerned about losing a client than sharing the reality.
Athletes, I urge you not to hire a Yes Man. Hire a team that is willing to speak the truth.
You will have enough people telling you how great you are, you don’t need another echo chamber.
2) The Entourage
No athlete does it alone. Countless people have been and will be a part of your journey.
It is natural to want to bring them along for the ride and at a certain level I think you should.
Yet like many things in life, this requires moderation.
Paying for a dinner, great.
Paying for every dinner, not so great.
Paying for a trip, great.
Paying for every trip, not so great.
See the theme…I want our athletes to support the people that helped them get there.
Just remember, it is far more enjoyable to support in a sustainable way (every so often) than an unstainable way (every time).
3) Buying vs Affording
Consider the normal financial arc ~ entry-level job, increase income over decades, earn peak income in your 50’s and 60’s.
Now consider that as an athlete you are earning a lifetime worth of income in typically less than a decade.
The window is shorter.
The checks are bigger.
The decisions are magnified.
You can buy nearly anything (see the big checks)…yet that doesn’t mean you can afford anything.
I want you to consider two frameworks:
The first is understanding the difference between rewards purchases and lifestyle purchases. One happens one time while the other can happen on an ongoing basis.
The second is understand your fixed costs vs your flexible costs. Fixed costs are lifestyle costs that can’t be shut off tomorrow (housing, food, insurance, etc..). Flexible costs can be dialed up or down (travel, reward purchases, etc..).
Nearly every athlete that ends up in financial trouble, built an unsustainable lifestyle.
Said another way they built a lifestyle full of fixed costs that could not be unwound quickly enough.
4) Back-to-Back Homeruns
You know that contract you signed for millions of dollars? That is your home run.
The good news is you don’t have to hit another homerun.
The bad news is you will be tempted at every turn to try to.
The world of athlete investing has turned into a status game.
Don’t believe me...just follow the top sports business news for a week and it will be littered with athletes making shiny new investments.
Now look, on the surface there is nothing wrong with an athlete making a front page investment.
Yet the issue arises when you as an athlete think your investments should look like Lebron James' investments.
Lebron has made hundreds of millions on the court and even more than that off the court.
His ability to take risks (on shiny investments) is higher than yours.
For every athlete, the first goal of your investment portfolio should be to support your lifestyle post-playing career.
To do that, you need to invest in a way to hit singles and doubles ~ not home runs.
For a deeper dive into how to build these investments, you can read our guide on investing for professional athletes.
You see, being on the cover of Forbes should not be the goal of an athlete.
No, no, no…I would argue the goal of an athlete is to build an investment portfolio that supports your lifestyle, stacks the odds in your favor, and allows you to sleep at night.
Now once you have done that (this requires specific planning for you) only then should you consider taking a swing for the fences.
5) Dunning Kruger Effect
The single most common trait among professional athletes is self-confidence. Consider how many people have doubted you or your dreams.
Yet time and time again you have provided them wrong.
That self-confidence, while a prerequisite for success in the athletic arena, can be a double-edged sword when it comes to your money.
In short ~ just because you are good at being an athlete doesn’t mean you are a good investor (at least at the start).
The key here is taking a walk before you run approach, remember hitting singles and doubles is a recipe for long-term wealth.
So check your ego at the door, put your question hat on, and start educating yourself on how you are positioning your money.
My advice to all of our professional athlete clients is to have a laser focus on staying in the game.
Consider the value of a dollar…now consider the value of that same dollar with additional decades to grow ~ a bit more valuable.
Money doubles like this:
Take 72 and divide it by your rate of return, let's use 8%.
72/8 = 9 years.
For an athlete, that could mean 5 to 7 doubles for money invested in their 20s.
$1M to $2M to $4M to $8M to $16M.
Remember that snowball analogy?
Well, if you can position that snowball to build (based on good money moves), you can create a life that far surpasses your expectations.
Moment was built with a mission to ensure more athletes achieve a financial outcome they are proud of decades after their playing career ends.
Yet, to achieve that outcome...the planning starts today.
If you are a professional athlete looking for help securing your financial future schedule a call with our team.
Get in Touch With An Advisor
Frequently Asked Questions
Here are some answers to questions received regarding athletes and money:
How do you determine how much to spend?
For us, this is an ever-changing process that starts with understanding current spending and working off of that as our baseline.
What is the biggest mistake you see with sudden wealth? Without a doubt, it is spending before getting educated. The key is building a roadmap before building a lifestyle.
What role does budgeting play in avoiding money mistakes?
We find this to be critical both in providing guardrails for spending and giving one permission to spend on the things they value.
How should professional athletes think about investing?
We use the analogy that you have hit the home run and now the key is finding a way to consistently hit singles and doubles with your investments. Our number one goal is protection and staying in the game.
What can professional athletes do today to avoid money mistakes in the future?
The one number thing to do is build a plan and understand what it costs to be you. If the checks stopped today could you support your current lifestyle?
*Moment Private Wealth offers information on tax and estate planning that is general in nature. Tax and Legal advice are not provided by Moment Private Wealth. Consult an attorney or tax professional regarding your specific legal or tax situation.
