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Financial Planning for Athletes: The Perils of Hitting it Big
What You Can Learn From the Mistakes of Those Who Accumulate Wealth Quickly
We marvel at the talents of professional athletes. We also dream of accumulating wealth in a short period of time as they have. The reality is that some of us will end up in a better position financially if we follow some fairly straightforward rules of investing.
Financial planning for athletes differs somewhat from the average salary-earning worker in that they will accumulate their wealth in a few short years before they’re forced into retirement. Those who are successful plan wisely and avoid the temptation to live large. A first-round draft pick will last around nine years on average. However, the players selected later in the draft that make the opening day roster will see a career lifespan of around six years. The point is that these players have a little time to amass the money they’ll rely on for the remainder of their lives.
ESPN highlighted the expenditures of one player selected in the 10th spot in the draft. According to ESPN, Travis Taylor made big purchases at luxury car dealerships and a Rolex watch shop, bought a new home, and spent $40,000 on furniture, even before he had signed with the Baltimore Ravens.
This would all seem perfectly logical if he could count on a career that lasts until he’s 65, but in reality, he may be lucky to be in the league on his 30 birthday. The lesson here for the rest of us is that the top earning years can be shorter than we expect. Investing with consistency and working with a professional advisor can mean maximizing these earnings over the long haul.
Athletes pulling down big salaries find themselves in a very high tax bracket. Those without accountants or financial advisors sometimes fail to take into account that nearly 40 percent of their earnings must go to Uncle Sam. Others may fall victim to scammers who offer the moon but take everything, which is what NFL player Darren Woodson found out when he lost almost $4 million in a bad deal with a financial planner. The takeaway here is that taking big risks rarely pays off. What are you doing to lessen the blow of the taxes you pay and how risky are your investments?
Professional athletes experience the same financial pitfalls and temptations we all face, but on a bigger stage and in a grander scale. Like us, they are sometimes too focused on spending rather than saving; they don’t put a consistent retirement plan together and they are not always willing to invest responsibly because it seems like there will always be plenty of time to earn more money.
If you’ve got questions about wise investing, contact the team at Family Investment Center. In fact, our founder/CEO Dan Danford is a Registered Financial Advisor for the NFL Players Association. Aside from our nationally-known credentials, it’s our focus to see you reach your goals in a commission-free setting. Reach out to us today and let’s get started.