1. He who dies with the most toys does NOT win!
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Athletes need to be aware of the danger of the “lure of the tangible” or “keeping up with the Joneses” mentality. They face tremendous pressure from outsiders who expect them to live an ostentatious lifestyle and from competition amongst their own peers. The pressure felt in the locker room can be intense, but athletes must avoid unnecessary overspending. Instead, each individual needs to establish a reasonable budget and learn to live a comfortable, but sustainable, lifestyle within his means. As I sometimes ask my clients, would you rather live like a king for a few years and die broke or live like a prince forever?
2. How to Actually “Help” Family and Friends
Even though it comes from a good place, sometimes an athlete’s desire to help loved ones does more harm than good. It’s not that athletes shouldn’t provide help, but it’s a question of HOW that help is provided. Athletes need to be careful about simply giving material items to people—reasonable gift giving is fine, but not when taken to excess. Not only can giving gifts create ongoing financial obligations for the athlete, but it can also stifle the recipient’s growth as an individual. If your client wants to help loved ones, encourage them to use his or her wealth and stature to invest in their becoming independent and accomplishing their own dreams. Rather than simply buying things, he or she should think about paying for someone’s tuition or job training, which enables them to develop the skills necessary to become self-sufficient. Creating dependency hurts those you are trying to help.
3. Surround Yourself With a Team of Professionals
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Athletes today are not just players, but large businesses—they are their own individual companies. While the athlete is the CEO, he needs to be supported by a team of competent and trustworthy professionals. Athletes must undertake proper due diligence in selecting their financial advisors and other professional team members to assure that a proper system of checks and balances is created. Hiring professionals means not just hiring people you grew up with or people who will just say “yes.” Rather, athletes need experienced advisors who can help them evaluate situations, identify the risks and provide enough information to help the athlete make informed decisions. Sometimes, this actually means having to say “no!”
4. Finances Should Be Built Upon a Solid Foundation
While private equity, venture capital and “other” investments (like restaurants, bars and music production companies) often sound exciting to athletes, there’s no need to take unnecessary risk. If a solid foundation is established first with a slow and steady methodical approach, there will likely be room for other opportunities later (in reasonable amounts). However, taking unnecessary risk with alternative investments too early could significantly damage the foundation, causing the whole pyramid to crumble.
5. Always Be Cautious
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If an investment’s return sounds too good to be true, there’s a reason . . . it’s usually illegal or extremely risky! Be careful of allowing the client to invest with friends or in “get rich quick” schemes. Encourage them to ignore these overtures and help them evaluate the true merits of an investment opportunity. Remember, athletes hire financial advisors for their expertise, not for their friendship.
6. Live Within Your Means and Maintain Reasonable Expectations
Everyone wants to have a nice lifestyle, but how many cars and homes does anyone really need? Athletes are goal-oriented by nature and setting financial goals that are measurable is a great way to help attain financial security. One goal to strive for: be debt free by the end of your career. Encourage clients to be careful not to overextend through credit cards and debt. I often remind my clients that my job is not to make them rich, but to help KEEP them rich. The single biggest determining factor is how much the athlete spends versus saves.
7. It’s Never Too Early to Start Saving for Retirement
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Beyond skill and hard work, part of what enables professional athletes to succeed is self-confidence. However, one major challenge to attaining long-term financial security is overestimating the length of one’s career. When it comes to financial well-being, athletes should plan as if their current contract will be their last. Most professional athletes feel invincible, but they aren’t! An athlete should not rely on saving for retirement from their next contract, because there might not be another contract. It’s never too early to start saving for retirement and the athletes who are most successful financially heading into retirement are the ones that start planning early and contribute to a retirement fund (or account) from every paycheck. Remind your clients to pay themselves before they pay anyone else!
8. Think About the Game After “The Game”
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Many athletes struggle with the transition to retirement, which usually arrives earlier than anticipated. This challenge can be both financial and emotional and is completely understandable. After all, anyone fortunate enough to become a professional athlete probably dedicated most of his or her life up until that point on their sport. Whether the struggle is financially based (i.e., no more paychecks, the need to scale back on lifestyle) or more personal in nature (i.e., losing one’s sense of identity, missing the camaraderie), the best way to transition into retirement is to prepare yourself in advance. Athletes shouldn’t be trying to figure out how to replace the huge paychecks when retirement arrives. Rather, they should be encouraged early in their careers to discover where their off-field/court passions lie, and spend their playing years figuring out how best to pursue those endeavors when the time comes. They must be prepared to take advantage of opportunities that are presented during their active years to network, make future business contacts, and figure out where happiness and satisfaction are derived other than sport. If you’ve got your financial house in order, your next job should be one that you take because you love it, not because you need a paycheck!
While most athletes are not formally trained in finance, everybody should develop an understanding of the basics of handling money to succeed financially. A financial advisor’s job is not only to execute a financial plan, but also to help educate the client about financial affairs. Take the time to establish a budget with your client that you track and review regularly. Similarly, encourage them to take an interest in their portfolio so that they understand how it is managed. Always be available to answer questions. Remember: Nobody should care more about their finances than they do!
10. Don’t Let Taxes Be So Taxing
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An athlete’s tremendous opportunity for wealth comes at a cost—namely taxes . . . and you better believe that Uncle Sam is going to take his cut! Although it’s impossible to avoid taxes entirely, athletes can save significant amounts of money with proper tax planning. Most people simply file their tax returns when due, which is simply tax compliance. Tax planning, on the other hand, is a much more proactive approach, which requires working with qualified tax professionals to analyze the athlete’s unique situation in an attempt to reduce their tax burden. If your client earns $5 million dollars, strategic tax planning resulting in a reduction of even just 1 percent means an extra $50,000 in their pocket.