Athletes are some of the highest-earning individuals in the world. Average workers will never earn in their entire lifetime how much a professional athlete earns in five years. Most athletes make financial mistakes like buying many unnecessary things without saving that end up taking too much of their fortune. As such, there is need for professional athletes to manage and plan for their finances properly.
Why Financial Planning for Professional Athletes is Important
- Many professional athletes tend to overspend and live a lavish lifestyle because they don’t have experience managing wealth and money.
- One of the ways that professional athletes can manage their income and wealth is by planning for retirement and making profitable investments.
- Tax strategies like residing in states or locations with tax advantages can also help professional athletes retain much of their earnings.
Financial Management Strategies for Professional Athletes
Professional athletes do not usually have a prolonged working contract compared to an average worker. However, they receive hefty remuneration that can cover them for a long period if they manage their finances well. As such, it is best that they start saving from day one.
Athletes need to prepare for unforeseen scenarios like injuries that may affect their contact. Athletes do not have guaranteed contracts and new contracts depend on how they performed in their previous ones. Athletes can manage and plan for their finances in the following ways.
1. Plan for the Long Term
Since athletes do not have guaranteed long term contracts, it is best they plan for the long term with their first paycheck. Financial advisors suggest that athletes need to come up with a long-term plan to ensure that their high incomes can benefit them years in the future. With proper planning, athletes can adopt excellent financial habits that can serve them in the long run.
They need to plan for a second career when their playing days are over. For instance, athletes can invest in projects that can generate passive income which they can benefit from when they retire. It is important to note that most athletes retire at the age of 30 while average workers start retiring at 50. It means that athletes need to plan 20 years ahead compared to the average worker.
2. Selecting the Right Financial Advisors
Professional athletes need to get the right people to advise them. It is because investments need some experience and a wrong move could see one lose millions. Financial advisors help athletes find the rough investments, contacts, insurance and plan their taxes well. Finding a financial advisor with the best interest at heart is critical for any professional athlete.
A financial advisor to athletes will identify investment opportunities that can grow wealth to prepare the athlete for retirement. Consequently, athletes need to know how to compensate their advisors so that they do not undercharge or overcharge them. A good financial advisor should be honest with his clients and have their best interest at heart. The financial advisor needs to involve the athlete in financial planning and management to ensure that funds are used well. People are more accountable for their money than anybody else.
3. Managing Personal Relationships
One of the major problems professional athletes face is managing relationships with their family and friends. Professional athletes tend to attract many friends and athletes feel obligated to give back to them especially for supporting them. There is nothing wrong with that, but it is best that athletes learn how to manage personal relationships.
Professional athletes need to give back to friends and relatives with utmost care to avoid interfering with their financial stability. It is good to plan before you can assist others and determining the amount to give out. Finally, athletes need to establish boundaries between friends and relatives to manage their money well.
4. Tax Planning
Professional athletes need to plan for tax returns and also look for tax minimizing strategies. With proper tax strategies, professional athletes can keep much of their earnings. Some of the tax strategies that professional athletes need to maintain include:
- Residing in states with tax advantages. Some of the states in the US that have tax advantages for high-income earners include Florida, Texas and Tennessee.
Understanding the effect of taxes when signing bonuses. Tax on athletes’ income is allocated to their state of domicile. If their state does not levy tax income, such athletes can save a lot.
5. Managing Sudden Wealth and Fame
When professional athletes gain fame and riches, most tend to live a lavish lifestyle that ends up hurting their financial capability. When professional athletes gain fame and riches within a very short time, they don’t get time to adjust to their sudden income increase. Also, people that gain wealth suddenly don’t have a lot of experience in wealth management it is very easy to make wrong financial decisions. As such, many professional athletes tend to overspend when they are accorded VIP treatment and get accustomed to a rich lifestyle.
Conclusion of Financial Planning for Athletes
Many professional athletes receive high incomes and bonuses but very few of them become financially independent. It is because many of them do not have experience in managing wealth and as such, they tend to overspend and live a lavish lifestyle. With proper financial planning and management, professional athletes can become financially stable even after retirement.