The MintLife Blog has an infographic on the financial struggles of the average professional athlete. Yes, professional athletes make plenty of money but many of them file for bankruptcy only years after their career ends. The infographic lists five contributing factors to the financial struggles of the professional athlete (you can view the entire infographic here). What can we learn from their mistakes?
Even if you have the money, it doesn’t mean you should be spending it. Yes, your needs must be met but part of your income should be earmarked for paying off debt, saving for emergencies and financial goals, and building a retirement fund. Once you’ve accounted for your needs and debts, and contributed towards savings and retirement, you can focus spending money on the things you want.
Additionally, be wary of lifestyle changes when you start making more money: just because you have more doesn’t mean you should spend more. Many professional athletes buy fancy cars and houses — even jets! Maybe you weren’t tempted to go jet shopping after your most recent raise, but it can be tempting to go on shopping sprees, upgrade your car, or go on expensive vacations once you start making more money. In the end, you might find that you have more stuff but less money than you did before your raise.
#2: Small window, large earnings
Hopefully, your career won’t have as small of a window as a professional athlete. Still, the general message here holds true: eventually, you’re going to stop working. When that happens, will you have the funds to support your retirement?
Create a financial plan. Save. Invest. Open an IRA. Does your employer offer a 401(k) or 403(b) matching program? If so, take full advantage of it. Remember: when it comes to investing, time is your friend (thanks to compound interest), so start saving as soon as possible — it will pay off when your career is over.
#3: They just don’t understand finances
The financial world can be scary: the long list of investment options can be intimidating; the thought of losing money can be paralyzing; and there are a lot of charts and graphs, and big words. Learning about finances and investing is the only way to overcome these hurdles. Read a book. Research investing online. Take classes. Speak to professionals.
Of course, there’s more to the world of finance than investing. Personal finance requires budgeting, both short and long-term financial plans, tax planning, and saving as well. Take the time to learn more about these things, create a financial plan, and put what you’ve learned into practice: the application of knowledge is just as important as the acquisition of it.
#4: Poor investment choices
Personally, one of the biggest reasons I didn’t start investing until recently was the lack of knowledge. I just didn’t know how to invest. I’m currently not a fount of financial knowledge, but I’ve learned enough to recognize the need and start investing.
That said, it’s not wise to start throwing money into investments you don’t understand. Know what you’re investing in and make sure you understand the risks that are involved. Additionally, don’t put all of your proverbial eggs into one basket. Diversifying your portfolio can help stabilize your investments during troubled times.
If you are working with an investment partner, be sure you do your due diligence on the person or firm before committing to them. This takes us to…
#5: They entrust their money’s management to the wrong people
Some financial advisors are only looking out for themselves; for example, they might only sell investments that they can profit from, regardless of how they affect you. Heck, some people are out there just trying to scam you. Others might have your best interest at heart but not be able to perform; this not only includes market performance, but adequate customer service; proper record keeping; fair, competitive fees; and other types of services.
Your finances are an important part of your life — make sure you are comfortable with and trust the people that get involved with them.
We might not be professional athletes…
Professional athletes might make millions of more dollars than the average person, but that doesn’t mean they’re not bound by the same financial principles as the rest of us. We can learn a lot from their financial mistakes, and perhaps the most notable for me is this: having more money doesn’t mean you don’t need sound, responsible financial plans. In fact, it might mean that you need it more.
MintLife Blog’s infographic contains some shocking statistics — which one of them surprised you the most?