“How are your finances looking right now?” When I ask this question to many of my athlete friends and current clients, the answers vary. Typically, though, people are fairly confident in their current financial situation. Money is coming in, they’re spending comfortably on things they want and need - life is good.
However, there’s something that not very many of them are preparing adequately for: the future.
What Do You Need To Prepare For?
Having plenty of money now is a wonderful feeling. But if you look five, ten, or even thirty years down the road - are you still sure that you’ll have everything covered? Life gets increasingly complicated as we age, and if you’re looking toward the end of your career, this becomes even more true.
I would suggest that the first and most obvious life moment you’ll need to financially prepare for is your retirement. Whether that’s a comfortable idea or not, we all need to retire at some point. Your retirement can be whatever you want it to be, and you have a lot of different options. You may consider an encore career in a field you’re passionate about, you might stay in the world of professional sports in some capacity, or you might choose to focus on your family, travel, charitable foundations, or whatever.
No matter what you want your retirement to look like, one thing is certain: you’re going to need to have savings and a strategy to make it happen.
I believe that the next piece of your financial planning puzzle needs to be your family. If you have kids (or are planning to in the future), you’ll want to consider how you’ll support them through their childhood and into their college years. Setting up a 529 savings plan, or other college savings strategy, can help you to ensure that they’ll always be afforded the opportunities to educate themselves and lead a successful life.
Looking beyond your immediate family, you may also want to consider how you’ll financially support your parents. In today’s world, many adults will end up being part of a “sandwich” generation. This “sandwich” generation is at an age where they have the responsibility to take care of their own children financially (often by helping to pay for college, or supporting them shortly after they graduate and look for a job) and, at the same time, taking care of aging parents.
While this might not be top of mind now, it will certainly take a strong financial background to juggle these extra expenses when they do come up - as they inevitably will.
How Do You Prepare?
As you look toward your future, you may be wondering how you’ll get started financially preparing yourself for the changes that are coming. While we are never going to be 100% sure of what the future holds, we can make sure that we’re financially prepared to handle anything life throws at us.
The first step to take care of your financial future is to take care of your financial present. This means getting a handle on how much income you have, and how it matches up to your expenses. Income is just what it sounds like - money coming in. This could be the money you receive based on your contract, but it could also be more passive streams of income - like investment earnings, sponsorships, etc.
Once you have an understanding of what money is coming in, and what money is going out, you’ll need to know what to do with the excess. You work hard for your money, so it should be working hard for you. Taking extra funds you have coming in and prioritizing saving over spending is an ideal way to protect yourself against future expenses. Whether it’s an unexpected household outlay a few years from now, or rising medical cost thirty years from now, you want to have a savings strategy now to address it then.
Typically, it’s recommended you save 20% of your total, pre-tax income. First, it’s wise to build an emergency savings and pay off any debts. The emergency savings can be anywhere between 3-6 months of expenses. Ideally, you’d be able to keep this money in cash so that it’s easily accessible in case you need it.
Next comes retirement. Whether you’re contributing to an IRA, or other retirement savings account, you’ll want to carefully evaluate your risk tolerance and whether your investments match your financial goals and values. Finally, you’ll focus on saving for other goals - like funding your children’s education, buying that beach house, or helping fund a nonprofit you’re passionate about.
These Are Just The Basics
You likely know the importance of saving, but building a strategy can still be overwhelming.
These steps are just the beginning:
- Understanding income and expenses to get an idea of cash flow
- Evaluating how much of your income should be saved for emergencies
- Building a retirement saving strategy
- Saving for additional goals
Because your goals are unique, and your life as a professional athlete is unique, it can pay to work with a financial planner who has experience in the world of pro sports. As a professional athlete myself, I understand the obstacles that athletes and young professionals like you face, and how to help you plan for the future with a tailored financial planning. Contact me today to set up a meeting, or just to talk. I’d love to hear from you!