Professional athletes often have a reputation for undisciplined spending and financial excess. While this has been well documented by ESPN and Sports Illustrated who cite that 78 percent of former NFL players have gone bankrupt or are under financial stress after 2 years of retirement, not all players approach their finances this way. In fact, more athletes are becoming cognizant of the importance of financial discipline and planning for life after the game. Washington Redskins quarterback Kirk Cousins (will earn $23.9 million for 2017 and drives a $5,000 Minivan) is an example of the new class of financially aware athletes. From driving modest vehicles to saving large percentages of income and avoiding depreciating assets, these NFL players have been making shrewder financial choices than many of their peers. Not only can fans look up to some of these athletes for their play on the field, they can also learn from the financial game plans they have off the field.
Living below your means
Oddly enough, having money is not the most important factor when determining lasting financial success. (Higher bankruptcy rates amongst professional athletes are not usually due to a lack of income.) Instead, one of the single greatest predictors of financial success is simply living below your means. Regardless of how much money you earn, a spending level that consistently exceeds your financial resources will often lead to significant financial distress and debt. While it is easier said than done, making sure your spending levels are lower than income will help ensure you are able to avoid debt and save for other current and future goals such as retirement planning or education funding.
Consider making savings an expense on your budget.
Too often, people employ a “save whatever is left” approach to their budget and at the end of the month, there is often little left over. Choosing to make saving money a secondary priority usually doesn’t lead to an increase in savings. Instead, consider treating your savings like any other expense and budget for it. Many disciplined athletes rely on their financial teams to help establish allowances for spending and saving. Building wealth requires an intentioned approach to savings and budgeting can be a simple, yet effective way to work toward this goal. Remember, there is no way to know how much you can save if you are unaware of how much you spend.
You can’t work forever
The new class of financially aware athletes also recognize that their careers do not last forever and it is important to have a game plan for life after work. Kirk Cousins notes, “You don’t know how long you’re going to play, you’ve got to save every dollar even though you are making a good salary.” While an athlete’s highest earning years are much shorter than the average worker, we can all learn from this concept. The reality is whether we are an athlete, teacher or physician, we only have so many years of earning and savings potential and it is critical to determine how much you should be squirreling away for the future. It is also important to achieve a balance between spending for today and saving for tomorrow. Enjoying today and achieving financial balance is not always easy. Interestingly, savers often have trouble finding the optimal balance because they never created a comprehensive financial plan to help pursue their goals when they are no longer working. Calculating both how much you can spend at different retirement dates and the savings required to get you to your goals may help.
Focus on appreciating assets
Finally, the Redskins QB and other financially astute players recognize the importance of avoiding the pitfalls of depreciating assets. Splurging on automobiles, boats and other retail purchases that decline in value immediately after leaving the store are generally not good investments. (Kirk Cousins bought his GMC Savanna passenger van from his grandma for $5,000.) Instead, emphasizing investments in appreciating assets (think 401(k)s, real estate, etc.) can help propel investors toward their long-term goals. While we all have to make some depreciating purchases, the goal should be to limit depreciating asset purchases to values that are well below your means rather than above. Remember, just because you have the money to buy something doesn’t mean you can afford it.
Whether you are a professional athlete or the average worker, financial literacy is the cornerstone to improving your financial position. Educating yourself and working with trusted advisors may also help you to employ a conservative approach to spending and saving. Despite being a simple concept, living below your means is a powerful approach to pursuing your financial goals. Since everyone’s situation is unique, consider speaking to your financial adviser to determine the most appropriate approach for you.