When it comes to money and athletes, the questions are endless.
Yet there is one question that rises above them all.
I would argue that the answer to this question is the culmination of every athlete wealth management question:
“Am I good?” or said another way “Can I keep spending what I am spending?”
You see professional athletes face a dilemma ~ they have the biggest advantage of all time (time on their side) and the biggest disadvantage of all time (lack of experience).
Compound that with an earnings window that is nearly always shorter than an athlete realizes.
I think about financial planning for professional athletes on a scale of 0-10.
A zero is someone that shows up on ESPN 30 for 30 “Broke”.
They spent everything
A five is someone who isn’t broke but doesn’t have nearly the money saved they should.
They spent too much.
A ten is someone who can live the same lifestyle post-playing career.
They are good (see our question above).
In this blog, I am going to break down the athlete spending problem, the key numbers to know, and how to
fix this for professional athletes.
Let’s dive in…
Professional Athletes - Key Money Numbers
Managing money comes down to numbers but not the complicated ones you hear about.
No, it comes down to simple numbers that anyone can understand.
Consider if you only knew these five numbers:
Your current savings rate (as a percentage).
Your current spending rate (as a dollar amount).
Your future desired spending rate (as a dollar amount).
Your projected investment return (as a dollar amount).
Your safe withdrawal rate (as a dollar amount).
You see every strategy you implement (planning, tax, insurance, estate, and investments) should be helping you get close to the outcome you want to the questions above.
Strategies are fuel to reach your outcomes.
Yet most professional athletes implement strategies before defining a successful outcome.
Consider this analogy ~ You need to buy a new car. Instead of thinking about all of the things you want to be able to do with the car, like:
Travel the country
Have enough seating
Provide good storage space
Drive well in harsh conditions
You just walk into the car dealership, listen to the salesman pitch, and buy the car that looks cool.
That is what I see happen time and time again with financial planning for professional athletes.
We act without defining the outcome.
We implement with no clear plan for success.
We stress because we aren’t sure if those strategies will achieve the outcome.
You see the loop this creates?
Ok, so instead of doing that let’s consider what happens if we know the five key numbers above.
1) Savings Rate
Your savings rate is the backbone of both your current financial picture and certainly your future financial picture.
Now consider, traditional financial planning would say you should save 15% of your total income.
What I will tell you is if you are a professional athlete and only saving 15% of your gross income you are in trouble.
Consider this example:
$1,000,000 Salary + 15% Savings Rate
Taxes + Agent Fees = $500,000
Savings = $150,000
Spending = $350,000
The average professional athlete's career lasts 3 years. In the above example, you would have saved $450,000 and maintained a lifestyle that costs $350,000.
So you have less than 1.5 years of savings to maintain your current lifestyle (yeah not good).
Instead, do this ⬇️⬇️⬇️
The best financial decisions start with the end in mind.
Said another way ~ you need to be thinking financially about your post-playing career just as your playing career is beginning.
The question I want professional athletes to consider is this, “What do I want my future lifestyle to look like?”
The more specific the better.
Then take that number to your financial team and ask how much money would be needed to live that lifestyle.
Only then can you start to understand what your saving percentage should be.
***For most professional athletes their savings percentage should be 50% - 80% of their take-home pay (after taxes and agent fees).
You must think about this not just as a dollar amount but as a percentage of your salary.
This will help to build the habit of saving more when you are earning more.
Example: You decide to save 80% of your take-home pay.
Year 1 take home = $1,000,000
Year 1 savings = $800,000
Year 10 take home = $10,000,000
Year 10 savings = $8,000,000
This reinforces a concept that I preach ~ Build your lifestyle slowly.
Remember, the goal is to be able to answer the fundamental question, “Am I good?”
2) Spending Rate
You see how I put the spending rate after the savings rate?
That is intentional.
Your spending rate is tied to your savings rate.
We want to start with the metric that feeds everything else first.
That metric is your savings rate.
Nail your savings rate (as a percentage) and you will find yourself with spending guardrails already in place.
The next step is determining if your savings rate supports your spending rate (as a dollar amount).
I am going to let you in on a little secret ~ nearly no one knows what they are spending.
There are two types of athletes when it comes to spending (and planning).
Athlete 1: “The Over Spender”
They think they are spending $20,000 per month when in reality they are spending $40,000 per month.
Athlete 2: “The Over Saver”
They are spending $20,000 per month but tell you to plan for $30,000 (just to be safe).
Now look, I would rather see you are athlete 2 than athlete 1 but neither of these athletes are optimizing their money.
The goal of money is this ~ To use as much as possible while not sacrificing for the things we have and need.
Professional athletes, you have to know what you are spending in dollars to live your lifestyle.
If you don’t know this number the next three numbers we are going to discuss are meaningless.
You are trying to plan to buy a car but have no idea what you need your car to do.
*** Pro-tip is to track your expenses through software like Monarch Money It is a great tool I have personally used and recommend.
Now onto step ⬇️⬇️⬇️
3) Desired Future Spending
Remember how the average professional athlete's career lasts just three years?
Well, the average professional athlete's career starts between the ages of 18-22.
I have news for you, your life is going to change a lot from that time to when you are 30,40,50 years old.
Yet, the decisions we make today will directly affect the lifestyle we are able to live then.
So, we bridge that unknown by giving specific thought to what we want that lifestyle to look like.
Yes, it will change....no this is not a perfect formula.
Yet what I want you to do is take out a piece of paper and write down everything you think you want.
A boat
A millionaire dollar house
Private school for your kids
Yearly vacations for your family
Make it specific and give serious thought to this.
Remember when it comes to financial planning for professional athletes, the strategies we implement have to tie to the outcomes we are desiring.
If we haven’t given proper thought to the outcome desired, how do you know the strategies are the right ones for you?
Well…You don’t.
So stop now, get your paper, and start mapping out your future life.
Then take to your financial team and ask how much it would cost to live that life.
Only then we can start talking more strategy ⬇️⬇️⬇️
4) Projected Investment Return
Investments are fuel for the outcomes you desire.
Say it with me…
“Investments are fuel for the outcomes you desire.”
Back to our car buying example:
If your desired outcome is to go 0-60 in less than four seconds ~ You don’t need an SUV you need a sports car.
If your desired outcome is to tow your boat, haul your family, and drive across the country ~ You don’t need a sports car you need an SUV.
Your investments should act the same way.
Investing for professional athletes is a complicated topic full of decisions, yet at its core it is simple.
Desired Outcome = Investments to Reach That Outcome
So the number you need to know is your projected rate of return.
Now look, no one has a crystal ball and I always recommend being conservative with your estimates but you still need a number.
What you need to understand as an athlete is the more risk you take, the higher your expected rate of return (projected investment return) should be.
What you need to decide is how much risk you want to take and combine that with how much risk you need to take.
Take this example:
Two athletes have a $10,000,000 portfolio.
Athlete 1 is spending $200,000 per year
Athlete 2 is spending $500,000 per year
The investment return needed to reach the outcome desired of athlete one than athlete two.
So before you choose any investments, you need to understand what return you need to achieve.
After all, investments are simply fuel to reach your desired outcome.
Now let’s tie this all together ⬇️⬇️⬇️
5) Your Safe Withdrawal Rate
To recap our journey so far, we know now:
Saving Rate (%)
Spending Rate ($)
Future Spending Rate ($)
Projected Investment Return (% & $)
Now we have to determine can the amount of money we have saved support the lifestyle we want to live.
You see when I say “safe withdrawal rate” all that means is how much can I pull from my investment portfolio and not risk running out of money.
The hardest part of building wealth is building the initial snowball.
As an athlete, you have an opportunity to do that in your 20s (massive advantage).
Now we have to navigate keeping that snowball intact (for decades) while supporting our lifestyle.
Traditional retirement planning leans on 4% per year.
Example: A $1,000,000 portfolio could support pulling $40,000 per year in retirement.
For athletes, this takes more nuance.
You need to consider:
Longer time frame
League retirement benefits
Future income opportunities (second career)
Compound that with a natural family spending curve that says you will spend more money from ages 30-60 than 60+.
Athletes, this is why I can’t stress enough the value of having an expert in athlete wealth management on your team.
My goal for our athletes is:
Not for them to die with the most amount of money
To use their money to support the things that matter to them.
Yet we have to balance that goal with decades of future spending, high spending years of 30-60, and income uncertainty.
There is no perfect formula for professional athletes to find their safe withdrawal number.
It varies by player…heck it varies by year for players.
Yet what you should know is what that number is for you.
Knowing that number and living a lifestyle that supports that number is the single best thing you can do to reduce anxiety around money.
There are countless money moves to consider for professional athletes.
Compound that with endless strategies and sales pitches, it can feel darn near overwhelming.
Yet at its core, every professional athlete needs to answer one question, “Am I good”?
To do that you don’t need a fancy strategy, one-off investment, or another shiny object.
You need to know your numbers.
You need a financial team that can guide you.
You need to be thinking about the end at the beginning.
If you do that, I assure you a ten-of-ten outcome is possible.
Moment was built with a mission to ensure more athletes achieve a 10 out of 10 outcomes.
Yet, to achieve that outcome...you need the right team to help you.
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.
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