By Gregory Moore
They’re young, rich, sometimes think they are privileged beyond all reproach. Yet they are probably the worst money managers on the planet and when a labor lockout like the two supposed ones coming for the NBA and NFL, they act like the grasshopper and not the squirrel.
Who am I talking about?
Professional athletes of course.
This issue isn’t something new in print but it seems to catch everyone off guard because of the perception that these guys understand what they have in front of them.
In reality that is so far from the truth.
Rarely is there an individual who is clocking seven or eight figures by the time he is 25 years old that understands that his maximum earning potential in THIS career is short and that he needs to bank almost 70% of his annual salary.
Think about what I just said.
Professional athletes should be banking 70% of their salaries if they are in the seven to eight figure range for a few years. That means that for $1,000,000 a player is getting in salary, $700,000 should be in the form of a nest egg or some sort of investment for long-term gain.
That’s equivalent to you and I taking 7% of our salaries and saving them. If you make 70,000 a year gross, that means that you should be saving about $4,900 a year somewhere.
Granted we all have to pay state and/or federal income tax and yes professional athletes have these ridiculous salary taxes they pay in various cities because those municipalities are too damn lazy to generate their own internal revenue streams from an already overtaxed public in their jurisdiction but one would have to think that these guys have it easier as far as saving money than we do.
Evidently not if the NFLPA is advising players to save HALF of their salaries from next season to make sure they can have a decent lifestyle in case of a lockout.
Seriously is that what it takes? A lockout to get young men to save?
Now there is nothing wrong with players going to a money management course like the one NFL players have been attending over the years.
As Deion Branch put it best in an interview, “Everything they’re saying relates to what we’re doing in our lives as athletes,” Branch said in a telephone interview with The Associated Press. “Guys trying to take advantage of us by taking our money, guys making bad investments, everything. They hit everything that goes on in a professional player’s life.”
For Branch and his peers, making good investments, sound financial decisions and being able to perpetuate their earnings into something more should be the goal of every professional athlete but that is not always the case.
How do you know when a guy like Branch has grasped what he has early in his career?
You simply look at how he acts and lives.
Think about it for a moment and see if you don’t agree with this hypothesis
If you won the Mega Million lottery today, which is sitting at $139 million, what’s the first question you answer?
“Sir/madam, how do you want your payment, lump sum or annuity?”
If your answer is I’ll take the lump sum, then that means you will be getting $40.5M up front; not the $67.5M (yes, Uncle Sam is going to take his 40% cut so you might as well give it to him now).
But what if you said you’d take the annuity payments over twenty-five yearly installments?
Could you live off of an annual income of $5.56M a year before taxes, or roughly $3.336M after taxes?
Now if you are thinking, “I’ll take the annuity payments,” you may be on the right course of understanding how to perpetuate what you have each year. Even if you socked away just $1.4M of it a year in savings, you still have almost $2 million to live off of?
Either way, the most serious question that you should ask yourself in this hypothetical is, can you live a modest means and put away the majority of your yearly windfall?
That’s the same question that should be asked of these pro athletes and they really should be asking themselves that question.
As independent contractors, they have to be the ultimate accountant of their finances.
Not their agents. Not their financial advisors. Not even their trusted family members.
Each and every single one of these young men who are clocking in these phat paychecks need to have a serious talk with their inner selves BEFORE a lockout situation arises.
“Do I really need to buy a $300k car when maybe a $50k will do?”
“Should I go out and blow all my money on a $2.5 million dollar home, worry about property taxes and upkeep expenses or should I just plunk down maybe 50% on a $400k house or condominium for a few years?”
“Do I really need the bling or can I get by with modest pieces like a Movado watch and maybe a nice chain that isn’t gaudy but classy?”
If these young men who become instant millionaires early in life are not having these types of conversations with their inner selves and with each other, then going to a money management course at Yale, Harvard or Big Momma’s house around the way will not help them save for that rainy day.
Yet those that do, those who have gotten the lesson very early and who live modest lifestyles despite the untold financial riches they have, those are the ones who will survive not only a labor lockout from their employer/league, but also be the individuals who will succeed in business and in any economy.
It’s never too late to learn to become a good money manager but it’s a bad decision to wait until something perilous may happen where it affects your livelihood in a short time span.
If you don’t believe me, just ask any of those grasshoppers from when the winter started.
That is if you can find any of them right now.