Building Blocks for Wealth
Too many athletes focus on paychecks, not investments. Here's one athlete's advice on adding to your earnings.
Like the outcome of a game, financial success is decided by the contributions of many good habits, not necessarily one "star" strategy. But in our quick-fix, fast-paced world, sometimes the basics go unnoticed. Through my experience earning a pro athlete's salary and interviewing other professional athletes, I have developed these tips to help athletes build up their wealth (non-athletes take heed, too.)
Live well below your means
For professional athletes, spending significantly less than you earn is easier said than done. However, not living below your means is a slippery slope to amassing huge debts that will bury you under an avalanche of finance charges. Even the most skillful downhill skier will never be able to overcome such a predicament.
Plan for tomorrow's surprises
As an athlete, you learn fast that tomorrow is always full of surprises: injuries, illnesses, layoffs, lockouts, recessions. Few athletes take the time to make plans for their future. Seeking the advice of a certified financial planner can be helpful before deciding on a personal plan of action.
Know exactly where your money is going
How many times have you heard a well-compensated athlete say, "Where did the money go?" I have interviewed many players across the NBA, NFL, NHL and MLB, and I've heard it from nearly every one. Not knowing where the money was going has left scores of athletes bankrupt. Keep abreast of the financial horses your advisor has in the race for you, and the risks associated with them.
Be cautious of money managers
Ask the right questions. Get answers that make sense, and do your own research to validate said claims. In this case, micro-managing can be a good thing.
Stay on your financial advisors
Schemes and scams are major headaches for pro athletes. They are not alone in their pain. Americans lost roughly $10 billion in 2004 by way of investment fraud. Get references and do your homework on everyone who handles your money.
Create and stick to a budget
Athletes understand the boundaries of their respective sports. Failure to stay within those parameters violates the order of the game. Realize that personal financial success has boundaries too; a budget keeps your house in order.
Keep a log of daily spending
Whenever I buy something - however inexpensive - I always ask for a receipt, especially when spending cash. In my book, Hook Me Up, Playa!, I recount the story of the word's first billionaire. It begins with a man of legendary frugality, who recorded every penny he ever spent. He also documented what he earned and saved. If it had to do with money, he wrote it down. This legend? John D. Rockefeller.
Invest in projects with a clear ROI (Return on Investment)
Any project that sounds too good to be true or is increasingly complicated should be thoroughly researched and maybe even avoided. If you don't fully understand an investment proposition, don't invest in it.
Remember the net
There's a difference between gross salary and net salary. Too many athletes think they can spend gross salary dollars, which leaves them spending money they're never going to see. You can only spend what you actually take home.
Look for a bargain
It's important to know the average price of the products or services you plan to buy before you make the purchase. Ain't nothing wrong with bargain shopping. Entrepreneurs are good stewards of their money. And, if you are planning to pay extra for the sake of convenience, you should make certain the convenience is worth it.
Get a Plan B...and a Plan C
One financial management expert to several pro athletes candidly stated, "Seventy percent of pro athletes have to work in another arena when their sports careers conclude." Shocked? I was too. In other words, have a Plan A, a Plan B, a Plan C, and a Plan D.
Lawrence Funderburke, a veteran NBA forward who last played with the Chicago Bulls in 2005, is the author of Hook Me Up, Playa! He wrote the below article for OT Magazine Spring - Summer 2006. Although aimed at high-income professional athletes, the principles are useful to any prudent investor.