9 Habits That Can Help Professional Athletes Make Their Money Last
Professional athletes earn a large sum of money early in life. When not handled properly, their six-, seven-, and eight-plus figure salary can vanish in a blink of an eye!
There’s a false sense of security regarding professional salaries. Sure, some athletes may make 5x that of an average worker in just a couple of years, but that doesn’t mean they don’t need a financial plan and budget like everyone else.
To make money last, athletes must consider debts, lifestyle inflations, second careers, and other financial goals. Here are 9 habits professional athletes should adopt to make their money last.
1. Understand Your Contracts
One of the first things athletes can do to make their money last is to fully understand their contract. It seems basic, but as a young professional in the industry, it’s not uncommon to just go with the flow and rely on those around you.
Athletes need to review each clause in their contract and if you don’t understand something, ask. There may be stipulations in the contracts that you weren’t aware of that may pose an issue down the line.
It’s important to know what’s guaranteed and what’s not.
- For example, what happens if you get injured?
- Can the contract be terminated if an injury lasts for a certain period?
Injuries happen all the time in professional sports, so you want to ensure that you’re being treated fairly if that were to happen.
2. Know Your Timeline
We may not be able to have a crystal ball, but it’s crucial to think about your long-term plan. How long do you think you will be in the sport? You’ll need to handle your finances differently if you plan to play for 5 years versus 10 years.
Most professional athletes have about 3-5 years in their chosen sport. You can’t expect to be like Tom Brady and play for 22 years straight—that’s the exception, not the rule! The right financial advisor will be able to help create a financial plan to prepare you for the next stage of life.
3. Plan For The Future
Many athletes benefit from a "second-career" plan. It’s not realistic to expect to be fully retired at 30. Not only would that be difficult financially, but it would also take a toll on your mental health.
As you create your second-career plan, think about what you're interested in pursuing and where your passion lies. Perhaps you’d like to coach, start your own business, or try your hand at being a sports commentator. Whatever you decide, have a clear understanding of what it will take to get there, whether that be additional training, schooling, or moving across the country.
4. Invest for Retirement
Professional athletes need to save for retirement, just like everyone else. Each League will have its own retirement plan for its athletes. The retirement plan could be anything, like a 401k, pension, or annuity. Whatever it is, make the most of it by contributing early.
Investing in other tax-advantaged tools like a Roth IRA or Health Savings Account (HSA) is also wise. Comparatively to professional athletes’ salaries, the contribution limits of these accounts should be fairly easy to max out. Keep in mind that professional athletes may earn too much to directly contribute to Roth IRAs, so consider a Roth conversion (converting money from a traditional account to a Roth) or investing in a Roth 401(k) if your League provides that option.
A great tip is automating your investments, so you don't have to think about them monthly. If you don’t see the money, you won’t spend it on other things!
5. Saving Outside of Retirement
Retirement isn’t the only thing that athletes need to save for. As you think about your short- and long-term goals, you’ll have a clearer idea of how much you need to save.
- Do you want to go on a lavish European adventure?
- Buy or build your dream home?
- Or pay for your children’s college expenses?
Your financial advisor will be able to help build a savings strategy to reach your goals.
You may also need to consider preparing to care for your aging parents. Caregiving and healthcare can add up quickly, so it’s essential to be ready for these future expenses.
Lastly, don’t forget about saving for an emergency fund. We recommend putting away 3-6 months of total monthly expenses into a savings account in case of an emergency. No one ever anticipates getting injured or sick, but an emergency fund is a vital safety net if anything were to happen.
6. Make Intentional Investment Decisions
It’s so easy to get roped into the "latest" or "hottest" investment trend when you’re surrounded by high-income earners. But the last thing you want to do is lose your money on an investment you didn’t fully understand.
As a high-income earner, you may be financially secure enough to explore alternative investment opportunities like crypto or real estate, but make sure to do so with purpose and in ways that align with your long-term plan. Your advisor will be able to help you make an informed decision about these types of investments and how they could impact your financial future.
At the end of the day, you should be deliberate and thoughtful with your money—and not just with traditional or alternative investments.
As you make more money, it’s not uncommon for family and friends to ask for some help financially. Remember that you don't have to loan family and friends money just because. If you decide to financially support loved ones, be sure to set boundaries and clear expectations.
7. Don't Get Bogged Down By Debt
An athlete’s career is relatively short, so paying down debt as quickly as possible is essential.
Before paying down debt, know that all debt is not created equal. Start by paying off high-interest debt and work your way down the line.
This may seem obvious, but don't accumulate debt just because—the new sports car everyone has or a vacation home you don’t need. Before you make big purchases, consider your long-term plan for these items. How do they serve your life now and in 5, 7+ years?
8. Live Within Your Means
Whether you make $30 million or $30,000, every dollar you spend or save should be intentional.
It's easy to spend a little too much, especially when you're making so much at a young age. A few extra hundred dollars here or there may not seem like a lot now, but it adds up fast.
Again spend in ways that align with your goals and values. When you do that, you won't be trying to keep up with the Joneses or be the highest-earner on your team—you’ll be doing what’s best for you and your financial journey.
9. Develop A Positive Relationship With Money
Mindset is imperative when it comes to finances. How you think and feel about money can drastically affect your spending and savings habits. There are two common mindsets regarding finances: scarcity and abundance.
A scarcity mindset is where you believe money is hyper-limited, no matter how much you save, it leaves you in a constant state of striving for ‘more.’ While an abundance mindset is the opposite. Those with an abundance mindset focus on what they already have instead of everything they don’t.
It can be challenging to overcome a scarcity mindset, but you can start by finding more gratitude for the small things in life and trusting your self-worth. Our background and upbringing are key factors when it comes to our money mindset, so it’s important to recognize that and make any necessary efforts to improve your mindset.
Stop Chasing, Start Planning
When it comes to financial freedom and well-being, professional athletes have a lot to consider. From contracts to debt to your overall relationship with money, it can be a little overwhelming—that’s where we come in!
Our financial advisors at Pro Wealth specialize in financial planning for young professional athletes. Start on the path to a stronger financial future—get in touch with our team today.
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