Recently in the news there have been countless stories of professional athletes who have filed bankruptcy or are broke, in some cases due to the NBA lockout. Many people have asked how is this possible, how can someone who makes millions of dollars a year be broke. The answer is – there is a difference between being rich and being wealthy. Many athletes get caught in the frenzied lifestyle of buying multiple cars, homes, jewelry and spending money without tracking it. When their career is over the money is gone and they are forced to file foreclosure or bankruptcy.
Nothing lasts forever and that includes money. They don’t realize that the money will eventually stop coming in if you don’t have a plan B. Many athletes are focused on their sport, put all of their trust in their support staff and don’t take the time to learn how to manage their money and make it grow. Based on the pension plans of many professional athletic organizations all athletes should have a plan B. As we have learned from other professional athletes who trusted their financial staff, sometimes you have to take control of your financial destiny. Sports pension plans are another reason why athletes should have a plan B.
The NFL offers full benefits at age of 55, with a minimum payout of $200 a month for each season played in the NFL for playing at least 3 years in the league after 1992 or 4 years prior to 1992. NBA
players receive a minimum of $200 a month up to a maximum of $306.34 per month for each season played regardless of performance.
NHL players pensions require at least 160 games played for eligibility and are determined by the length of a player's career. Players who played less than 400 games can receive $8,000 per year starting at age 45. Players who played more than 400 games can receive $12,500 per year starting at age 45 and can receive an additional $250,000 a year starting at age of 55. MLB players can receive a pension after 43 days and can receive full medical benefits after one day. PGA players receive a pension based on a complicated formula to determine earnings for retired players with benefits starting at age of 50. If they continue to play benefits start at age 60. NASCAR does not offer a pension plan. Here are 14 ways professional athletes can develop a plan B.
1. Budget. Track your money in addition to hiring an accountant, lawyer, financial advisor and other financial industry professionals. Create a budget and don’t spend than your budget allows. Track spending, daily, weekly or monthly. Use online tools such as mint.com or online banking to help track spending.
2. Checks. Sign your checks. You can set a dollar limit for checks that do not require your signature but still be aware of what the check is for and verify that check is being paid to a legitimate company.
3. Scams. Be aware of scams. If it sounds too good to be true it usually is. Do research on the latest “hot business or financial tip” you get from a friend or associate. There are no quick ways to make money. Growing your money takes time so be patient.
4. Spend Less. Always spend less than you earn. Create a balanced budget. Learn how to stretch your dollar. A balanced budget is based on income after taxes and consists of: housing 35%, debt 15% (excluding mortgage), savings 10% (minimum), transportation 15%, and other expenses 25%.
5. Gossip. Ignore gossip and comments from others about what you should or should not have or how you should spend your money. They usually don’t have any money or have bad spending habits.
6. Impress. Avoid keeping up with the Jones’. Newsflash – the Jones’ are broke too.
7. Value. Forget about impressing people with what you have on the outside, impress people with what you have on the inside. Realize that your self-worth cannot be defined by material possessions.
8. Void. You cannot fill a void in your life by buying things or spending money. If you have a void in your life, seek professional guidance on how to eliminate the void.
9. Change Your Thinking. Change the way you think about money, live like a wealthy person instead of a poor person. Wealthy people shop at Wal-Mart, are informed consumers, are financially savvy and find ways to make their money grow. They don’t purchase in excess or buy things that have no value.
10. Educate. Educate yourself about how to successfully manage your finances and make your money grow. Review your financial statements each month to check for errors and ask questions if you don’t understand something. Read self-help books or articles on how to manage your finances with books by experts such as: Warren Buffet, Donald Trump, Napoleon Hill or The Millionaire Next Door.
11. Protect. Protect your wealth. Create a will and trust, and get health, life, disability, long-term care insurance to protect your finances and prevent you from going into debt if you become ill.
12. Future. Plan for tomorrow instead of living just for today. Instead of buying a home that costs $1.5 million, buy a home that costs $750,000. Instead of paying for expenses for all of your friends and family members provide options for them to make their own money. If they are physically able to work there is no need to take care of adults unless it is your parent or grandparents.
13. Outlook. Read self-help books on how to find happiness within. People who manage their money and people who are happy are less likely to spend money frivolously or are less likely to be in debt. Don’t dwell on what you don’t have, focus on what you do have and pass on life lessons to help others.
14. Legacy. For every action there is a reaction. Create a reputation for yourself that shows you excel in every aspect of your life. Don’t be a question mark when you die. Ensure your reputation will be something people will remember and speak highly of; you don’t want to be remembered as he used to have money, or he made millions but lost it, he could have been this or he could have been that. Be exceptional.
