For professional athletes, managing finances is often more complex than for the average person. With large sums of money earned in short career spans, athletes need to approach their finances with care and discipline. Among the most important financial responsibilities athletes face is ensuring they can consistently pay their bills—both now and long after their playing careers are over.
Here’s an overview of how professional athletes can manage their bills effectively and avoid the pitfalls that lead many into financial distress.
1. Understanding Income and Expenses
Professional athletes typically earn significant incomes, especially at the peak of their careers. However, these earnings often fluctuate due to seasonal contracts, endorsements, and potential injuries that can interrupt cash flow. It’s important for athletes to:
- Recognize their true income: After taxes, agent fees, and other deductions, an athlete’s take-home pay can be significantly lower than their gross income. Knowing what’s left after these deductions is essential.
- Identify recurring expenses: This includes everything from rent or mortgage payments, utilities, car payments, and insurance premiums, to discretionary spending on luxury goods, travel, or entertainment.
- Track non-recurring expenses: Athletes often face high one-time expenses, such as large purchases or unforeseen costs like medical bills or legal fees.
2. Setting Up an Organized Bill-Paying System
Athletes often face distractions from their day-to-day financial responsibilities, and keeping track of bills can fall by the wayside. Setting up an organized system can help:
- Automate payments: Many athletes use automated bill pay to ensure recurring expenses, such as rent, utilities, and car payments, are covered on time each month. This reduces the chance of late fees or missed payments.
- Hire a financial manager: Many athletes benefit from hiring trusted financial managers who can oversee bill payments and daily financial activities. This ensures that no bill is overlooked, especially when an athlete’s focus is on their performance.
- Budgeting tools: Using budgeting software or apps to track expenses can give athletes a clear overview of their finances and help ensure they don’t overextend themselves with lifestyle choices.
3. Avoiding Lifestyle Inflation
One of the biggest challenges athletes face is lifestyle inflation. As they begin to earn more, they may feel pressure to upgrade their homes, cars, and overall lifestyle to match their income. While it’s natural to enjoy the fruits of their labor, athletes need to be cautious:
- Long-term perspective: An athlete’s career is often much shorter than those in traditional professions. If athletes spend based on their current income without considering the years when they won’t be playing, they can quickly run into financial trouble.
- Maintain a modest budget: Setting a budget that leaves room for savings and investments while keeping monthly expenses manageable is crucial for long-term financial stability.
4. Addressing Irregular Income
Unlike salaried employees, professional athletes often face irregular income streams. In many cases, they receive large lump sums of money upfront, such as signing bonuses or endorsement deals, and then smaller paychecks throughout the season.
- Smoothing income: Athletes should work with financial advisors to smooth their income over the year. Rather than splurging after receiving a large sum, setting aside funds to cover bills throughout the year can help manage cash flow.
- Savings buffer: Athletes should aim to save a portion of their earnings to cover periods of lower income, such as off-seasons or post-retirement. Having a buffer ensures they can continue to pay bills even during income lulls.
5. Protecting Against Financial Risk
Unexpected events, such as career-ending injuries or contract disputes, can quickly derail an athlete’s financial plan. Proper planning and protection are essential:
- Disability insurance: Athletes should ensure they have comprehensive disability insurance to protect their income in case of injury or an unexpected end to their career.
- Life insurance: Protecting loved ones is another important consideration. Life insurance can provide financial security to dependents in case something happens.
- Emergency fund: Maintaining an emergency fund that covers at least six to twelve months of expenses can help athletes cover bills if their income suddenly stops.
6. Avoiding Common Financial Pitfalls
Many athletes have fallen into financial trouble due to mismanagement of their bills and overall finances. Common pitfalls include:
- Over-investing in risky ventures: Athletes should avoid putting too much money into high-risk investments, such as starting a restaurant or investing in friends’ business ideas. These ventures can often lead to financial losses.
- Ignoring tax liabilities: Athletes need to pay attention to tax obligations, especially if they play in different states or countries, each with its own tax rules. Failure to account for taxes can lead to hefty bills later on.
- Outsourcing without oversight: While it’s helpful to have financial advisors and managers, athletes must stay engaged and informed about their financial situation to avoid being taken advantage of.
7. Preparing for Life After Sports
Athletes must plan for their financial future beyond their playing careers. While they may no longer have their athlete paycheck, bills and living expenses will continue:
- Transitioning to post-career life: Athletes should plan for a second career or business venture and start saving and investing early for their post-sports life. Creating a steady source of income for retirement is critical.
- Diversifying income: Whether through real estate investments, stocks, or other passive income streams, diversifying income sources helps ensure bills are covered even after the final game is played.
In conclusion, paying bills as a professional athlete requires careful planning, discipline, and attention to detail. By managing their income wisely, avoiding lifestyle inflation, and protecting against risks, athletes can ensure they not only cover their bills during their playing careers but also set themselves up for long-term financial success.
Written by Pat Brown, MBA