Money Lessons from Bankrupt Pro Athletes

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Money Lessons from Bankrupt Pro Athletes

Money Lessons from Bankrupt Pro Athletes

America loves sports and professional athletes are some of our biggest cultural heroes – earning millions of dollars and the adoration of millions of fans. So why do so many pro athletes go bankrupt? According to a 2009 article in Sports Illustrated, 78 percent of NFL players will go bankrupt in their lifetimes and 60 percent of NBA athletes are broke within five years of retirement.

Despite their massive salaries, many pro athletes are vulnerable to going bankrupt. What are some of the lessons to be learned and mistakes to avoid?

Maximize your peak earning years – and save accordingly.

Most pro athletes are never going to earn as much money as they are making during their sports careers. Their peak earning period is very short – just a few years for many athletes. Of course, the challenge is many athletes don’t save enough of their money during their peak earning years – instead, they spend like there’s no tomorrow. What’s more is many pro athletes have expensive lifestyles and they spend as if their pro athlete income level is going to continue forever. They buy huge mansions, fleets of cars, closets full of designer clothes, rec rooms full of electronics and entertainment. (Does any of this sound familiar to you?)

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Even for the rest of us who aren’t pro athletes, we still need to save money regularly and consistently over the course of our lives. Most of us have an advantage over pro athletes, in that we will probably earn more money in the future than we earn today – people’s incomes tend to grow over their working lives, peaking in the mid-to-late 50s. But no matter how old we are or how much we make, we all need to save for retirement, save for emergencies, and save for other times in life when we might have a lot less income than we have today: save money during the prosperous times to be ready for the lean times.

Know who to trust.

Many pro athletes are bilked out of their money by unscrupulous financial advisers and agents. Kareem Abdul-Jabbar had an agent who stole $9 million from him. Former New York Knicks player Mark Jackson once had an agent who forged Jackson’s signature on $2.6 million worth of checks (the agent had a gambling problem). NBA Hall of Famer Scottie Pippen unsuccessfully sued his former attorneys for allegedly losing $27 million of his money.

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Too many pro athletes get targeted by shady people claiming to “help” them with their money – it’s like sharks smelling blood in the water. What’s the lesson for the rest of us? Before signing up with a money manager or financial adviser, do your research. Does this person have references? Is this person certified by a national accrediting organization? Have there been complaints lodged against this person with any government regulatory agencies? And listen to your gut – does this person seem sketchy or shady or suspicious in any way? Do you feel comfortable with this person? Have they answered all of your questions thoroughly and confidently, or do they seem evasive, like a fast-talker? Avoiding getting entangled with bad financial advisers can save you thousands of dollars over the course of your life.

Avoid risky investments.

Many pro athletes lose millions of dollars investing in bad real estate deals and dubious business ideas. (Many of them get drawn in to these “can’t miss investments” by unscrupulous financial advisers – see above.) Whether you’re a millionaire athlete or an average working person, you can’t afford to invest your money blindly. You need to understand where your retirement savings are going. Investing is not gambling. You don’t want to be too risky with your money – and there’s no such thing as a “can’t miss” investment; every investment has a certain level of risk. Every business idea has potential downsides. Think long and hard before putting too many eggs in one basket by speculating on real estate (“flipping foreclosures”) or private equity deals (“investing in your friend’s/cousin’s/brother-in-law’s business”).

Don’t be too generous.

Some pro athletes give a lot of money to help support their family, relatives and friends – stories abound of pro athletes who buy houses and cars for parents, extended family and even their “entourage” of old high school friends. It’s good to be loyal and generous, but not if it costs you your long-term financial security. No matter how big your “entourage” may be, make sure you’re not carrying more than you can bear. You need to take care of yourself and your immediate family first before you can extend your financial generosity to others.

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Whether you’re a personal finance “rookie” or a grizzled veteran of budgeting, saving and investing, offers great tools and resources to help you manage your personal finances, set a budget, whip your credit into shape, and become a personal finance All-Star.

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