Have you seen the new show on HBO called Ballers? It stars Dwayne Johnson (who else?) as a retired NFL player who’s transitioning into a financial advisory role for fellow athletes.
As with most shows on TV, the pro athlete lifestyle is depicted as — well, “baller.” Unfortunately, this is very different from the reality many athletes face day-to-day.
Your Money Guys would know. Brian used to work at a firm assisting A-listers and athletes with their portfolios, and Bo has a few friends in the NFL and MLB. They’ve witnessed countless athletes making the same financial mistakes over and over.
In this episode, Brian and Bo review six financial mistakes pro athletes tend to make — and that you can avoid whether or not you’ve got millions in your bank account.
Mistake #1: Not Having Emergency Reserves
Brian and Bo love to talk about how important emergency funds are, and for good reason. Without one, you might find yourself on thin ice. As a pro athlete, it’s easy to assume you’ll have tons of money rolling in at all times. That assumption is false.
During the off-season, athletes aren’t getting paid. They need to manage their money as well as anyone else. There’s no job security in the NFL with the average career of a player lasting 3.5 years. Pro athletes can be replaced, just like any of us.
Mistake #2: Not Thinking Long-Term
Our biggest motivators are often greed and fear. Pro athletes may have $50,000 to $100,000 hitting their bank account every paycheck. With that kind of income, buying a $7,000 watch might seem like “nothing.” It’s a drop in the bucket — until that paycheck stops coming in.
This is true for anyone who gets too comfortable in their job. Nothing is guaranteed, especially employment. Bo recommends adopting a “forced scarcity” mindset by earmarking money for savings and other goals so your budget feels tight. By allocating all your money, you won’t be tempted to spend it on other things. Pay yourself first.
Mistake #3: Getting Into Debt and Personal Guarantees
Some may remember the financial fallout from the Michael Vick fiasco. He made one too many personal guarantees, and when he lost his income, he owed more than he could afford. This goes hand in hand with thinking money is limitless. Your income can dry up, and it’s important to implement safety nets in case that happens.
Mistake #4: Thinking You’re Invincible
This occurs a lot among professional athletes. They love what they do, they give their sport their all, and they feel invincible on the field. But even if you love what you do and have no plans to retire, life can change those plans. Pro athletes are especially susceptible to this as they get injuries and can no longer play.
Guard yourself against these possibilities with insurance, regardless of how much money you have right now. You might think you can cover a medical emergency, but think about your family and what would happen to them if your earning power went away.
Mistake #5: Not Diversifying Enough
Diversification beyond assets is important. Get into tax diversification by putting money into taxable accounts, tax-deferred accounts, and tax-free assets. It’s a great way to secure success for your investments and financial future. Don’t put all your eggs in one basket like some athletes do, where all their income is tied to their position or team.
Mistake #6: Losing Focus Once Successful
How many times have we seen pro athletes try and branch out into fields completely unrelated to sports? Stars love to get into the apparel, restaurant, and production industries because they have big bucks, but that doesn’t mean they’ll succeed.
Lesson? Be knowledgeable about a potential investment before opening your wallet, and don’t let anyone take advantage of your money. Sadly, many newer pro athletes have to face their families and friends asking them for money once they’ve made it. Know who’s in your corner and who you can trust.
Whether you have a lot of money coming in or not, everyone would do well to be aware of these traps and take the necessary measures to avoid falling into them. Don’t get too comfortable with your financial situation and find yourself in a bind later on.