The average professional athlete in the United States makes more money in a year than the average American does in a lifetime so why are sports stars going bankrupt at an alarming rate. Sarah Halpin Certified Financial Planner and Vice President with The Danforth Group of Wells Fargo Advisors has tips on how you can help make sure you don't make the same mistakes.
1. Don't assume good times will last. In professional sports, young athletes often assume their careers will last decades. However, due to injuries and intense competition for jobs, the average career spans can be as short as 4 - 5 years. Investors too, must plan ahead for lean times. Having an emergency cash reserve, great credit score and appropriate savings or insurance in case of disability or premature death, can help soften a hard time.
2. Don't spend too much in retirement. It's one thing to live the high life while the multimillion paychecks are rolling in. But binge spending in your retirement permanently erodes your nest egg. Sports Illustrated found that by the time they have been retired for two years, 78% of former NFL players have gone bankrupt or are under financial stress and 60% of former NBA players have gone broke within five years of retirement. Trying to keep up with the Joneses, excessive debt and overspending can be a big problem for retirees. Retirees should run the numbers so they are comfortable they'll have sustainable amounts of income throughout retirement. Then determine the minimum amount of money they need to live the life they want to live.
3. Don't invest in areas you don't understand. Many athletes spend their lives studying and playing a sport and not taking the time to become financially literate so it's no surprise that so many have lost money to "too good to be true" schemes. Investors likewise need to ask questions before making investment decisions to that they "Know What They Own. And, Why They Own It". Don't be afraid to ask for more information on why this is it a fit for your portfolio? What are the risks? What are the fees and penalties? What are the implications if in an emergency you need to liquidate and have the funds back?
4. Don't trust family members. Ok, maybe you can trust your family members. But not always, with your money! Many young pro athletes have risen out of poverty to fame and fortune and become targets for family and friends in their communities. Also, according to the NFL Players Association, more than 78 players collectively lost $42 million between 1999 and 2002 as a result of entrusting their money to bad advisors. There are lots of good and ethical financial advisors out there who can help you. Interview advisors and check experience and qualifications. Visit web sites such as: Financial Industry Regulatory Authority (FINRA) Web site www.finra.org and Certified Financial Planner Board of Standards Web site: www.cfp.net
Source: Business Insider