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Athletes and Financial Problems
If haven't caught this week's Bloomburg Businessweek, you're missing out on an interesting article on the financial troubles of professional athletes. Just because they make millions of dollars doesn't mean they can't make some of the same mistakes many of us have made.
How Did Athletes Mismanage Their Money?
There are so many ways athletes ruin their finances, but some of the biggest reasons athletes run into financial trouble:
- Bad Business Decisions
- Lack of Planning
These problems aren't completely unique to celebrities. They just have financial problems of a bigger scale than most.
Handling Money and Family
Who doesn't have to juggle family and money? I think this is the hardest one to deal with. I'm sure many athletes want to help everyone they can, but like everybody, they only can do so much. No one has an endless amount of money.
There comes a time where people have to learn that helping family doesn’t always mean loaning money. They are many ways you can encourage and help your family (and friends) build their own finances without you going broke.
If you decide to have give a loan out, make sure it's in writing as a protection for you and them. Keep your own records, like a spreadsheet, to make sure they hold up their end of the agreement. If you want to help financially without giving them a loan, give a smaller amount at a free and clear gift. My guideline is never give more than what can you afford to lose.
Fighting Against Lifestyle Inflation
I know that my buy now, pay later lifestyle got me into credit card debt years ago. I had to adjust my thinking and focus on paying down my debt. Watch your spending carefully. Look again at your monthly budget and see how much you're spending on things that aren't necessary and don't matter to you. If coffee at home is just as good as a pricey one at the shop, then save your cash. On the other hand, if you really enjoy grabbing your morning cup, then keep it.
We love eating out, but we stay within our budget because we're frugal with other things. Find a balance with your money. Before you increase your spending (i.e. due to a raise at work), I suggest you have an emergency fund in place.
Lack of Planning
Some overly optimistic athletes don't plan for emergencies. Instead they their money as they earn it. When they encounter a speed bump their finances take a big hit.
How much should athletes have in their bank accounts for an emergency fund? Reggie Wilkes has advised clients to set aside a season's worth of expenses. That makes sense considering an injury (or lockout) can significantly disrupt your finances.
Thoughts on Money and Athletes
I'm not bashing athletes and their pay; I just thought the article was a great example about how finances affect all of us. Staying on top of everything is key to building a bit of financial freedom.
Not all athletes are horrible with their money. I was happy to see that some athletes choose business school after they retire to educate themselves with finances. Not everyone has to get an MBA, but be willing to learn is a good foundation.
Have you've made similar mistakes that some athletes have? What has been giving you a hard time with your money?
Photo Credit: laffy4k
Note: I updated this post in regards to the 2011 NBA Lockout. I just wish people would be more on top of their finances, whether they're athletes or not.