When we build a budget, we start with covering our bases - food, water, shelter, transportation. However, it’s easy to start to spend on things that don’t fall into these categories when we have an excess of cash coming into our lives. Professional athletes, for example, typically have plenty of money coming in.
Many professional athletes have a high net worth and a large annual salary. They’re able to take care of their living expenses and then some. They’re able to cover their “essential” budgeting expenses without much thought, and the rest of it goes toward things that may not necessarily be necessary. In some cases, athletes use their excess money to support and take care of family. In other cases, they might splurge on a new vehicle or home for themselves.
No matter what you choose to spend your money on, the point is that these non-essential expenditures feel like a drop in the bucket - right now. But what happens in a worst case scenario? Are you and your family protected against injury, accident, or another unexpected situation that could put you out of a job and out of a salary?
Plan for the Worst Case Scenario
Nobody wants to think that something bad might happen to them. Unfortunately, the unexpected is just that - unexpected. There’s no good way to know for sure what your future holds. That’s why it’s always best to plan for the worst case scenario. As a professional athlete, your career is significantly less stable than someone who has a traditional office job. One accident, or one torn ACL, and you could be out of the game.
Your income goes away quickly, and you’re left scrambling to build a financial plan. After you pay off all of your debt, you find that your food, water, shelter, and transportation disappear quickly. Your house might be foreclosed, your car could be repossessed, and your debts might be sent to collections. All of a sudden, you’re unable to care for yourself, - hardly an ideal situation or what you had in mind when you were doing pushing yourself to be the best you could be.
As an athlete, it’s in your best interest to always think ahead. Prepare yourself for not only the outcome you want to see happen, but every outcome that might occur. This often means changing a few things:
- You pull back your spending now and live within your means rather than overspending
- You avoid debt, even if you think you’ll be able to pay it off sooner rather than later
- You start putting money away in savings now to prepare for the future
All of these options can benefit you if the unthinkable happens, and creating a comprehensive strategy that leverages multiple strategies might be in your best interest.
The Importance of Saving
It’s so tempting to overspend while you’ve got a steady stream of income flowing in. This is an especially huge challenge for professional athletes who are surrounded by a culture that promotes overspending. We’re tricked into the idea that we need the nicest, newest, and best of everything - from cars to houses, to cars and houses for our parents, to helping friends, etc.. One thing we don’t often talk about in this pro-athlete culture is saving - when saving is the one thing we should absolutely be doing and encouraging one another to do.
When our careers can come to a crashing halt in a matter of moments, we need to save for the future. You might think that saving for retirement is something on the distant horizon, but the truth is that your retirement could start tomorrow if you’re unable to continue playing professionally. This is why saving should be a critical component of your financial plan.
To get started saving, you should take a layered approach:
- Build a cash reserve in case you have an unexpected accident or a large expense
- Start putting funds away in a retirement savings account to prepare for a comfortable retirement
- Consider saving for your children’s college education while you have a steady cash flow
There are several different ways you can organize your saving in a tax-efficient way, and a financial plannercan help you decide what strategy is best for you.
Budget Now, Live Well Later
In order to start saving, you need to build a budget. Adjusting your lifestyle to reduce spending and prioritize savings can be a challenge, especially if you’ve fallen into the habit of overspending, but it’s necessary to keep yourself on a good financial path. To build your budget, start by determining what expenses in your life fall into the following categories:
- Food and water
Then, determine whether or not you can reduce those living expenses to something more manageable should your income disappear in the next few months. This might mean downsizing your house, or paying off your car to avoid a monthly car payment. Once you’ve pared down your necessary expenses, you can take a look at how you want savings and debt repayment to play into your budget.
After that, you get to determine what “unnecessary” expenses get to stick around in your regular spending plan. To stay on track, try automating debt repayment, savings, and any billing for your necessary expenses - and align your unnecessary spending with your values. This will help you to stay fulfilled in the long run. Most Certified Financial Planners (they have CFP after their name) )have trained as hard in their profession as you have in yours. They know how to create a comprehensive, lifetime plan designed specifically for you and your family that will fit your lifestyle, values, and long-term savings needs.