Financial Planning for Athletes: 6 Steps to Long-Term Success

Professional athletes are in a unique situation when it comes to their finances, which requires a concerted approach to long-term planning. Athletes predictably excel during their 20s and also earn the most during that time. Usually, they lack formal business or investment experience, putting those six or seven-figure salaries and signing bonuses at risk. When you add in the fact that many athletes come from modest backgrounds, it is all too easy for them to deplete their incomes through excessive spending or assisting family and friends.

Why Is Financial Planning Important for Athletes?

Financial planning is important for athletes in order to ensure that their large paydays are conserved for the future. Factors such as age, inconsistent paychecks, and lack of investment experience contribute to the need for financial planning. The fact that the typical athlete only earns for an average of fewer than 10 years, makes financial planning the only way to avoid an uncertain outcome after retirement.

6 Steps to Successful Financial Planning for Athletes

Financial planning for athletes is not just a matter of contributing to a savings or retirement account each month. There are multiple steps that need to be taken simultaneously that cover the entire range of wealth management strategies.

1. Manage Cash Flow

Cash flow is a business financial term that should be applied to sports professionals. An athlete’s cash flow is a result of net income and revenue, minus expenses. The income side is reduced by taxes, and the expense side is increased by spending. While this is a simple formula, without a budget and discipline, the cash flow can decrease quickly and even become negative. Some athletes may even go into debt to maintain their lifestyle, without regard for funding retirement.

2. Prepare for Unforeseen Circumstances

There are numerous stories of athletes who enter a sport with acclaim and high earning potential, only to meet with unexpected injuries or poor performance. This can impact their income dramatically, as many initial contracts are only for a few years with a limit on guaranteed salary. There can also be unforeseen personal circumstances that require large expenditures, so financial preparation is key.

3. Build Cash Reserves

The more a cash reserve is built through savings, the more investment return can be generated. It is wise to have a percentage or dollar amount that is put aside from each paycheck, even if that means deferring some spending. Investment returns are multiplied by many times when started early, even when conservative strategies are used.

4. Engage Tax Saving Strategies

Taxes can take a large bite out of a paycheck and need to be accounted for as athletes are usually in the highest tax bracket. Contributing to retirement accounts and other vehicles can result in tax savings, even at a young age. This is also the case when selecting a domicile that may offer tax advantages.

5. Plan for Early Retirement and a New Career

Regardless of expectations, an athlete should plan for retirement which could come at any time due to injury or unforeseen circumstances. Planning includes preparing for a new career post-retirement to supplement any funds that have been saved and invested.

6. Work With Sports Financial Advisors

Taking all of these steps means hiring a sports financial advisor that understands the planning needs of a professional athlete. A savvy adviser takes into account high income, lump sum payments, asset preservation, and investment growth for long-term success.

FAQs About Financial Planning for Athletes

Do Athletes Have Financial Advisors?

Athletes need a financial advisor more than the average person, given the large amounts of money earned in a short period of time. Professional athletes have been compared to lottery winners when it comes to financial planning, with the same high taxes and temptation to spend lavishly. An advisor helps create a plan that suits the athlete’s income level and financial goals.

How Do Athletes Create Wealth From Their Sports?

The key to wealth creation for athletes is to make their short-term income last beyond the years of earning. That is accomplished through a combination of savings and low-risk investments that may have to endure for decades. This is why financial planning for athletes goes far beyond simple budgeting during income earning years.

Partner With an Experienced Financial Advisor

Premier Sports Network partners with a team of experienced financial advisors that prioritize planning for professional athletes. Financial planning is an essential part of our approach to athlete care, and we engage with advisors that understand the high earning levels and long-term financial goals for athletes.

Contact us to learn more about how a financial advisor is a valued partner in an athlete’s career and successful retirement.