Personal financial planning & money management

Key topic

Personal financial planning is a lifelong process, and athletes are guided through the specifics of it in this lesson.  Athletes, just like everybody else, will be making financial decisions all their life; sometimes they will foresee situations and plan deliberately, sometimes, well, things just happen, and they will be forced to make instant decisions.  Creating their financial game plan means making deliberate decisions now, that will allow them to get closer to their goals while reflecting the realities of being an athlete.

Learning objectives

• Personal financial planning helps you design your financial future. The earlier you start, the better off you are.
• The circumstances and characteristics of your life as an athlete influence your financial concerns and plans.
• The financial planning process involves figuring out where you are right now, where you would like to be, and creating a plan to get you there.
• Your personal financial plan should adhere to your personal values and mission, and it should reflect the legacy you want to leave behind.
• Needs refer to necessities. Wants refer to things you would like to have – something not absolutely necessary for your survival but which can add comfort and pleasure to your life.
• A budget is a plan for how to handle your money, and it serves as a roadmap to give you the money you need to live the lifestyle you want.
• Saving money is the cornerstone of a financially secure lifestyle. Saving allows you to build a foundation for establishing future wealth.

Introduction

The personal financial planning process is rather simple: You figure out where you are now financially, you decide where you want to be financially in different phases of your life, and you devise a plan of how to get from where you are now to where you want to go.  The difficult part is to have the necessary discipline, consistency and flexibility to stick to your plan, re-evaluate it when necessary and respond to unanticipated needs and desires sensibly.

This information will help you create your financial game plan, your organized strategy for maintaining financial health and accomplishing financial goals.  At some point or another you will have to devise a plan of your own, that will allow you to be financially successful; just like the game plan that your coach hands out, explaining how you will win the game, a financial plan takes into account several financial moves, which if you successfully follow and complete, it’s highly likely that you will be financially successful.

It’s recommended that you start thinking about financial planning as soon as possible, of course having in mind that you have to be in control of your finances and be earning some money, in order to execute your plan. Consider this an early sneak preview (just like in the movies), where you will learn how to plan your financials and you can definitely experiment with financial planning through your available financial resources.

Financial resources are the combination of income and earnings you will have in life; these resources can be salaries, return from investments, sale/rental of assets and in general any sources of revenue that come your way. Even though not always a good choice, a financial resource can also be money from a loan.

Through this lesson, we want to help you create your financial game plan, your organized strategy for maintaining financial health and accomplishing financial goals.  Developing your financial game plan will not only allow you to control your financial situation; it will enhance your quality of life, and it can reduce any uncertainty you may feel about money-related issues and future needs.

Your dreams, goals and values give a direction to your financial plan

All people have dreams and goals in life, for themselves and their families, such as buying a home, creating a business, saving for their children’s college education, travelling and retiring comfortably. No matter which stage of your athletic career you are currently in, no matter how much money you make and no matter your other circumstances, you need to have a financial plan in place which encompasses all your values, dreams and goals in a meaningful way to achieve them. Financial planning will help you manage your finances in a way that you can achieve your dreams and goals while not overlooking your values.

You will need money to turn some of your dreams into reality. These “financial dreams” form the basis and ultimate goals of your financial plan. The ability to structure your dreams into something that inspires and motivates you is the secret of turning these dreams into something tangible.  Writing down your dreams on a regular basis will increase the chances of them becoming reality. Deciding to pursue one of your dreams transforms it into a goal and finding the steps needed to accomplish the goal makes it part of your financial planning. Some goals may be set for the near future or short term. They can be accomplished in a few weeks, months, or a year.  Other goals may require long-term planning, disciplined saving, and sometimes guidance from financial professionals or digital financial tools.

Every person holds different values, such as family, success in career, health, love, comfort, friendship, different types of skills, helping the needy, education, etc. All these values affect the decisions you make during your life, the way you spend your free time and the way you handle money.

You need to remember that your personal financial planning should be in accordance with your values. You really need to “be true to yourself”, your plan has to fit you, not the dreams of your family, your boyfriend/girlfriend, or your friends.  If you’re doing this for anyone else but you, you will probably not make it and you will quit halfway. Therefore, you have to base your financial plan on the dreams you have, and what you really want deep down in your heart and soul. Your passion for your goals will help you stay focused and motivated to achieve them, and every small goal you achieve will help you move forward.

Defining your mission

Your financial plan should be steered by your mission in life, and it should consider the legacy you want to leave in this world.  You need to decide on your mission before you start the financial planning process.

A personal mission statement will help you identify your core values and beliefs.  Applying these core values and beliefs in your everyday life leads to the creation of your personal legacy, what people will know you and remember you for. By defining your personal mission, you will focus your energy on your personal priorities and goals, and you will have more chances of achieving these goals.  Your personal mission statement basically describes how you want to live your life.  To define your personal mission, you need to do self- reflection; you need to focus on your values and give your own definition of a successful life.

Your personal mission statement should consist of a set of guiding principles that capture how you want to live your life.  To come up with these guiding principles you need to answer the following questions:

• What kind of person do you aspire to be?”
• Which values shape your decisions?”
• Whose lives do you want to impact?”
• What does a successful and fulfilling life look like to you?”

The answers to the above questions will help you create your own personal mission statement, which will give you direction in the decisions you make on a daily basis.  Your mission statement is not set in stone. It should evolve as you grow, ensuring it always reflects your true values and aspirations. It is to be expected that the mission statement you write today will probably not be the same as the one you will write five years from now, or fifteen years later when you may be retiring from sport. It’s ok to start somewhere and as you grow and mature, your needs will change, your opinions and the way you approach life will change and so will this mission statement.

Action Steps – Exercise 1 (10 Minutes):

Ask the athletes to think about what their mission is and ask a few of them to share it with the rest of the class.  Continue with a discussion.

Creating your legacy

Your legacy will be the way people remember you and the way you impact people around you, such as family, friends, the community and so on; a way to be recognized by others. By designing and creating your legacy, you will not only impact others positively, but you will also enrich your life in the sense that you will not let life just happen; you will be the architect of your own life and design it the way you want.  To design your life purposefully, you need to identify the intangibles that make your life rich, and you need to give voice to the things that give meaning and purpose to your life.  A real legacy is built on what you are giving to the world; it focuses on how you make the world a better place.

Considering that you are at your prime, you have a lifetime ahead of you to offer the best of you to your loved ones, to your community and to the world.  You are most probably wondering how you should do that.  There are a few questions that you can ask yourself; the answers will give you guidance on how to make a difference and leave your mark in the world.

Questions to ask yourself include, but are not limited to:

• Who do you want to impact, and in what way?
• What lasting contribution can you make for future generations?
• What steps will turn this vision into reality?

Once you’ve answered these questions, you can start mapping your legacy with a long-term vision for future generations.

Jim Rohn and Chris Widener in the “Twelve Pillars” have summarized the concept of creating and leaving a personal legacy in the following manner:

“Live a life that will help others spiritually, intellectually, physically, financially, and relationally.  Live a life that serves as an example of what an exceptional life can look like.  Let others lead small lives, but not you.  Let others argue over small things, but not you.  Let others cry over small hurts, but not you.  Let others leave their future in someone else’s hands, but not you.  Leaving a legacy is like planting a tree.  As that seed grows into a tree, it will provide seeds, so that future generations can then plant their own.”

Creating your personal legacy is not a one-time deal; it is a work-in-progress.  As you continue improving yourself, your awareness of your life’s purpose will increase; that will help you fine tune your legacy-building steps and integrate them into your daily life and your financial plan as well.

Prioritize your spending: Differentiating between wants and needs

You must understand that “needs” and “wants” are two very different things that very sparingly coexist. Needs are essentials for survival and well-being, such as housing, transportation, food, and healthcare. You need a pair of shoes to practice your sport; you need to have a bed to sleep at night; you need a car to move around every day and so on.   Wants are non-essential luxuries, such as a beachfront house, designer clothes, or a luxury car.

The tricky part is identifying correctly what is actually a need, because quite often we tend to disguise wants as needs. Actually, differentiating between needs and wants is not as easy as it might first appear, due to the fact that a whole marketing science has been devised to shape the two by influencing our mindset and consumer behavior. Inability to differentiate between the two causes many people to spend recklessly, rendering them unable to save, or invest.

There is a simple rule you should follow: “Spend money on the things that you need before you spend money on the things that you want.” Spending your money following this rule does not, at all, mean that you should only buy the things that you need.  Life is meant to be lived, not survived. Treat yourself to some wants but do so when you can actually afford them.  Good money management is all about covering your needs first and spending on wants after and only when you have extra money to do so.

As a professional athlete, you will be faced with the conflicting choice of preparing for life ahead, retirement, and the impulse to live and enjoy the present. You need to find a balance between the two, often having to make compromises for the sake of your family and their future. Start by understanding your spending habits and patterns, how much money you are spending on your needs and how much on your wants; something which will allow you to both save more money for the future and be able to spend money on things you want now. Track your weekly expenses to spot overspending and adjust your budget accordingly

If you find that tracking your spending is too constraining, then you can create an account with money that will be used purely for spontaneous spending. Knowing there is money solely for that purpose can help you protect the money you have in your other accounts.  Setting clear short-term and long-term goals makes it easier for you to be happy with your spending choices. If for example you have plans to start your own business within the next three to four years, then your choice not to buy an expensive sports car, won’t seem so difficult.

It is highly acceptable to be “hungry” for progress, development, achievements and assets in your life. It is actually suggested that you maintain this level of being “hungry” throughout your life and in your sports career as well. At the same time, you should always reflect on the process of becoming who you are and having the things you set out to have, through your goals and be thankful and appreciative Once you master the ability to be thankful and appreciate where you are in life, you will find that it becomes much easier to identify your needs and distinguish them from what you want; it will help you mature in the process and it will also facilitate your financial plan altogether.

Action Steps – Exercise 2 (10 minutes):

Ask the athletes to think of a situation where they had to choose between spending on a need or a want.  Pick out a few athletes and ask them to describe the situation and what they ended up doing and continue with a discussion. 

Living within your means

The best money management habit to adopt is to always live within your means.  By adopting this habit, you are a step ahead in your financial game plan. The amount available for spending and saving is called disposable income.  It represents any income you have earned less taxes and other withholdings.  Your disposable income is what you have available to cover your needs, to spend on wants and to save.

Living below your means actually means that what you spend and save during a given timeframe, a month for example, does not exceed your disposable income.  It is advisable to first spend money on your needs, save a good part of what is left, and use the remainder to fulfil wants.  It is quite important to strike a good balance between spending money on wants vs needs and to save enough for future investing or for large purchases you may plan to do in the future.

Living above your means is when you spend more than your disposable income; usually that happens when you use credit, and you get into debt.  Consistently living above your means builds up debt which can prove to be disastrous to your financial game plan.  This is one of the worse money management habits to have and it should be avoided!

Living exactly within your means is when you spend all your disposable income on needs and some wants but you do not save any money at all.  Basically, this translates into ‘living for today’ with no financial planning for the future.  Even though no debt is created in this case, it kind of leads you to a dead-end situation with possible undesirable effects in case, let’s say, you become ill and cannot work to earn a regular income.

Learning to live within your means and knowing how to manage money, are some of the most important life skills you will ever master. Adopting smart spending and saving habits, along with wise investments, will guide you toward financial stability and long-term success. Using financial tools like budgeting apps and automated savings can make managing your money easier and more effective.

Earning money

Earnings are the money you make from a job or other income sources, such as investments, interest, freelancing, or digital platforms. Today, income can come from traditional employment, side hustle, content creation, or even royalties from intellectual property. Any financial profit or gain you make goes into the earnings category, since you earn that money.

Earning’ money requires effort—whether physical, intellectual, or creative. It could come from labor, skill, or innovation, such as professional athletes using their talents.  Once you work hard for your money, you become more mindful of how you spend it. Financial planning, prioritizing needs, and setting goals become natural steps in managing your hard-earned money.

You should be aware that

earnings fall into two categories:

• Active income: Money earned from working—whether in a job, running a business, or freelancing. This requires time and effort.
• Passive income: Money earned with little ongoing effort, by having your assets work for you and receiving dividends, rental income, royalties, etc.

Early in life, you usually rely on your parents for financial support, making it easy to overlook spending habits. However, preparing for financial independence early—by learning budgeting, saving, and earning skills—will help you transition smoothly into managing your own finances.

One key to financial success is not just saving but increasing your income. While cutting expenses is important, finding ways to earn more—through skill-building, side hustles, investments, or entrepreneurship—can accelerate financial growth and create more opportunities.

Earning your own money makes it imperative that you allocate this money wisely and with a plan. The allocation and control of your earnings, over a period of time is what we call a budget.  What you should also focus on is building multiple revenue channels which will help you increase and diversify your earnings.

Building multiple revenue channels to diversify your earnings

An athlete’s overall revenue is made up of income from multiple sources, whether that’s the athlete’s base salary, endorsements, or any other form of income. Athletes should diversify revenue channels, especially as they are near the end of their careers. The first and most basic revenue stream is the athlete’s salary, which is the amount of money an athlete receives to perform in the field, regardless of the sport they participate in. Salaries will likely take up the largest portion of the athlete’s revenue and are relatively stable, given that salaries are mostly determined in long-term contracts, and do not substantially vary unless an athlete is in free agency. The second most common form of revenue is endorsements. In simple words, athletes get paid by companies to market and promote their products in order to reach a wider audience.

Endorsements are amongst the most popular revenue streams for athletes and can sometimes overtake salaries, especially for more famous athletes. Moving on, a third and increasingly popular revenue stream is investments. Investments can take various forms and can be completely irrelevant to the athlete’s sport. Nevertheless, the general characteristic of investments is that they aim to use the athlete’s capital to create more wealth and increase the athlete’s revenue. Finally, but certainly not conclusively, athletes can earn revenues from other, more unconventional sources, such as participating in TV shows, holding motivational talks, or even producing their own books and movies. Amongst others, examples include Draymond Green, the NBA Forward who in 2020, begun participating in the “NBA on TNT” sports show providing commentary and opinions on the current affairs of the League. Lebron James, the basketball superstar who earlier in 2021, released “Space Jam: A New Legacy”, a movie built on cartoon characters, which serves as the continuation of “Space Jam”, the 1996 family movie starring Michael Jordan. Finally, Tom Brady, the famous American Football quarterback, in 2017 authored his second book; “How to Achieve a lifetime of Sustained Peak Performance”, which is estimated to earn him about $20.3M per year.  Today, athletes can also launch digital businesses such as offering online courses, fitness or wellness apps, creating personal YouTube channels, or building subscription-based content platforms. These digital ventures not only provide additional income but also help strengthen an athlete’s brand presence globally.

Having laid out different types of revenue channels, it’s important to understand why the need for multiple revenue sources in the first place, and how new revenue channels, apart from the traditional salary, can help athletes achieve financial freedom. An athlete’s short-lived career makes the strongest case for multiplying the athlete’s revenue channels, given that the main revenue stream – their salary – is only available for an average of 8-12 years, depending on the athlete’s sport. No athlete can live a financially independent life only on 12 years’ worth of salary, even if that salary reaches the astronomical numbers that some athletes get paid. Athletes need to reduce their dependence on their salaries and build a resilient financial trajectory which involves other forms of income such as endorsements, investments, whether passive or active and become involved in multiple lines of business, preferably unrelated to their sport. The Covid-19 pandemic, which led to NBA players taking a 25% pay cut and MLB players forgoing a large part their salaries, proved that salaries are highly susceptible to uncertainties. That, in combination with the short time span of athletes’ careers, creates the need for diversification and pivoting towards other sources of revenue. Another motive for athletes to multiply their revenue streams is the fact that salaries are by nature capped. One may say that capped salaries are not an issue, but why should someone leave money on the table when it’s available? It’s not a secret that famous athletes across all sports, such as Conor McGregor (UFC), Lebron James (NBA) and Roger Federer (ATP) make a lot more from their Endorsements, compared to their salaries, simply because their leagues cannot reward them for their off-the-court success.

The good news is that in the case of multiplying their revenue streams, athletes don’t have to re-invent the wheel but can rather follow the examples set by other athletes in various leagues. The football superstar Cristiano Ronaldo for example serves as a great example of how an athlete can multiply their revenue channels. Ronaldo’s yearly earnings in 2017 were estimated to be around $100M, only $58M of which derived from his salary. About $35M of his earnings came from Endorsements in companies like Nike, Toyota and others while the rest came from investments in his own line of footwear, fragrance as well as other miscellaneous investments. Another champion in securing multiple revenue sources is the NBA veteran Chris Paul. Paul earns income from over six different revenue channels, including his Endorsements from State Farm, his investments in Beyond Meat and Hyperice as well as his position as the president of the NBA Players’ association. Chris Paul is also invested in various real estate properties and cars, giving him the flexibility to generate additional revenue at any moment if necessary. Finally, a notable mention and a great entrepreneurial mind is the Tennis superstar Serena Williams. Similar to the above-mentioned athletes, Serena Williams earns a large portion of her income through her winnings and endorsements, but what makes her a noteworthy reference is her investment towards the creation of Serena Ventures. Williams essentially created her own venture capital firm to invest in businesses across multiple industries. By doing so, Williams leveraged her brand to maximize her flow of revenue while minimizing any associated risk.

Despite the above examples, it’s important to note that there’s no blueprint as to how an athlete can safeguard multiple revenue streams. An athlete needs to focus on putting together the right team, including a strong agent and financial advisor. Such team, led by the examples set by financially successful athletes, can open the door for the establishment of multiple revenue channels, and the path towards financial freedom.

Saving and growing your money

Savings refer to the money that you decide to put away for future use, instead of spending. It is a form of an opportunity cost, since you forego the opportunity to spend them now and instead store them for the future. On top of the numerous benefits of saving up for future purchases, delaying purchases in favor of saving helps you realize whether you need something or if it’s just an impulse purchase and a waste of money which you will shortly regret.

A common mistake people make, especially when their income is of a good standing, is failing to understand the need to implement a saving strategy; this strategy is imperative to your financial security, but also vital for financial growth, which will allow you to enjoy a lifestyle upgrade, or take corrective action in the case of possible financial setbacks or errors of the past. Setting aside money each month builds a foundation for establishing future benefits and even wealth.

If your weekly salary is for example $10,000 and your spending needs are only $8,000, it means that each week you can save up to $2,000. In a month that is $8,000. The piggy-bank example is perhaps the wisest example for people of all ages to follow. If you start saving at the beginning of the year, and you get paid for let’s say 30 weeks of the year, depending on how long your playing season is, then you will have saved at least $60,000 ($2,000 @ 30 weeks). Remember, you will continue to service your needs throughout each week, but at the same time you will reach a point when you have this extra cash in hand that you can use for investments, for making a large asset purchase, or for really splurging on a great vacation with the family.

You can follow some simple steps to develop your saving strategy, which must of course adhere to the goals of your greater financial game plan.

For short-term savings, you usually want to put your money somewhere safe and any interest you earn on it is just icing on the cake. Deposit accounts, like savings accounts, checking accounts, certificates of deposit and money market deposit accounts at banks are covered by the Federal Deposit Insurance Corporation. Traditional savings accounts offer security, but high-yield savings accounts and online banking options provide better returns. Additionally, micro-investing apps and digital savings challenges can help build a strong habit of saving.

We suggest you divide and allocate your savings into three basic categories: emergency, personal savings and long-term savings. You will reach a stage in your life where you will hopefully earn enough money to be able to save and have different saving schemes. Also, at some point in your life, you will be responsible for others (spouse, kids etc.), if you aren’t already, and that will put additional financial pressure on you.

One key to saving successfully is to trick your brain into saving more. Using techniques like rounding up purchases, using separate savings accounts for different goals, or automating transfers to your savings account, can make saving easier and more effective.

Your emergency savings must be your priority and must reach the point where they equal to approximately a year’s worth of your living expenses. Having emergency savings can reduce your worry in case any unexpected problems arise, especially with your employment status and the case of uneven cashflows usually attributable to athletes’ salaries.

Your personal savings are important for the overall quality of your life. When you have a family and kids, you will become responsible for providing them with the same, if not more, than what your parents have provided for you. It can be about a vacation that you had hoped for, for a long time, or a purchase that adds true value to your life.  Life is all about experiences and this is why personal savings are important.  You can use this money for the fun things you like to do, and it is up to you to determine how much you must save each month to pay for them.

Your long-term savings should grow over time through investments like ETFs (Exchange-Traded Funds), index funds, and retirement accounts. These offer long-term growth with lower risks compared to individual stocks. Deposit money into this account every month.  You should make it a priority to deposit money in this account first, before you pay your bills or buy anything else. Your long-term savings is the money that will give you financial security to plan your future, whether this is creating your own business, or paying for your new car, or having an extra cushion just in case.  Having smart goals in mind makes the choice to save—rather than spending—much easier.

If you are not sure about what percentage of your monthly earnings you should save, start first by putting about 20% to 25% of your net earnings into your emergency fund.  After you have built your emergency fund, you may set a goal to save 15% of your income for long-term savings and 15% for your fun savings. That means if you make US$10,000 per month, you save US$1,500 for long-term and US$1,500 for fun each month.

It is to be expected that a family of working-class people will not be able to service all three types of savings at the same time. Start with the emergency fund, which is important for obvious reasons and work your way from there. Utilize any extra money for your savings and start building your long-term savings once your emergency savings fund is at a good point. If you are in a situation where your sports career, or your business career, is in such good standing that you can afford to do all at the same time, then you should take the opportunity and do it, as you should not take anything for granted.

Saving while earning is one of the most crucial financial goals you should set and if you haven’t already started saving, you should make it an immediate priority.  Saving can indeed be challenging, but it gets easier over time. Don’t forget that saving is the key to calling your own shots and also the key to a better quality of life. By setting up and following your budget, you’ll see your savings grow over time. Start your savings plan now and reap the benefits every day of your life in the future.

Real Life Examples: Allyson Felix Allyson Felix is the most successful track and field Olympian in history. She beat Usain Bolt’s record for most gold medals in world championship history just a few months prior to giving birth in 2019. She has won 25 medals in total in the Olympics and other international championships. In 2019 she publicly exposed Nike for trying to cut her pay by 70% after having a baby. However, Felix is also a visionary. She has invested in a plant-based protein bar company and is a consultant to a fintech start-up. Felix co-founded Saysh in 2021, a women-focused shoe brand that emphasizes gender equity in sports and business. She has partnered with companies that align with her values, such as Athleta and Vital Proteins, further diversifying her revenue sources. She launched initiatives focused on maternal health and equity in sports, strengthening her brand beyond athletics. Felix was evidently a dedicated and determined athlete, but she never lost sight of the big picture. She did not put all her eggs in one basket.

If you are wondering how your savings and money will grow, the answer is rather simple, and it’s called interest and compound interest.

Interest is calculated as a percentage of a balance (sum of money), which is paid periodically for the privilege of using this money. The amount is usually quoted as an annual rate, but interest can be calculated for periods that are longer or shorter than one year. You should remember that interest applies if you have money and lend it, for example if you deposit your money in the bank that is a form of lending your money to the bank for use; if you borrow money from the bank, it means that you have to repay the bank the amount that you borrowed, plus extra money that is the interest the bank sets for its own profit.

When you decide to start a savings fund (sooner than later) you will deposit the funds in a savings account, which effectively translates to you letting the bank use your money (lend it out or invest the funds). In exchange, you’ll expect to earn interest. If you are not going to earn anything, you might be tempted to spend the money instead, because there’s little benefit to waiting. But with interest, you benefit from saving your money. This interest usually depends on the bank rate, the amount you save and the time period you choose to keep your money saved. A higher rate or longer-term saving, results in making more money.

Compound interest basically means “interest on the interest” and is the reason behind many investors’ success.  Compound interest, also known as compounding interest, is interest calculated on the initial principal, but also includes all of the accumulated interest of previous periods of a deposit/ loan. Compound interest will make an amount grow at a faster rate than regular interest, which is calculated entirely on the (initial) principal amount.

By taking advantage of compound interest, you can end up with significantly more than your original savings and be on your way to achieving your lifetime financial goals.

We will take a look at an example of the power of compound interest.  Let’s say you save $1,000 per year for 10 years and you receive an interest of 5% per year.

Year	Amount at start of year	Amount saved	Total amount subject to interest	Interest earned at 5%	Total amount at end of year
	US$	US$	US$	US$	US$
1		1,000	1,000.00	50,00	1,050,00
2	1.050.00	1,000	2,050.00	102.50	2,152.50
3	2,152.50	1,000	3,152.50	157.62	3,310.12
4	3,310.12	1,000	4,310.12	215.50	4,525.62
5	4,525.62	1,000	5,525.62	276.28	5,801.90
6	5,801.90	1,000	6,801.90	340.09	7,141.99
7	7,141.99	1,000	8,141.99	407.09	8,549.08
8	8,549.08	1,000	9,549.08	477.45	10,026.53
9	10,026.53	1,000	11,026.53	551.33	11,577.86
10	11,577.86	1,000	12,577.86	628.89	13,206.75
Total Amounts		10,000		3,206.75

 

As you can see from the above example, at the end of 10 years your total deposit of $10,000 has a compounded interest yield of $3,206.75.  Not bad right?

Action Steps – Exercise 3 (10 minutes):

• What would happen if you saved $10,000 per year for 10 years at 5% per year?
• What would happen if you saved $1,000 per year for 5 years at 10% per year?
• Do you understand the power of compounding interest and how you can use it?

Creating a simple budget

The general belief is that people who have lots of money don’t need to follow a budget. This is not true in the case of athletes; the special financial circumstances of their professional career, their expected lifestyle and tons of stories out in the media about athletes going from “riches to rags”, make budgeting an absolute necessity. Broadly speaking, if you are prone to overspending, then it doesn’t matter if you make $2,000 or $20,000 a month. In the first case you might “waste” money by buying 15 bottles of champagne during a night out, in the latter by buying a new car! It is really important for the professional athlete to understand how imperative it is to set a budget and stick to it, but trying to see the big picture and take a long-term view is difficult when you are earning large sums of money.

Irrespective of your financial situation and capabilities, you should always have a budget in place. Budgeting is an important tool because it helps you understand the bigger picture and it helps you control your financial situation at any given point in your life because it makes you take a long- term approach in life. A budget is a summary of your expected income and expenses for a period of time, usually a month or a year. While the word budget may have been falsely connected with restricted spending, you should remember that actually a budget translates into efficient spending.

You should remember that creating a budget is one of the best solutions to creating long-term financial sustainability and success, as well as being prepared for any financial situation in your life and having control of your financials. The most important thing to remember for now is that a budget is essential in your life and that you should be equally disciplined, as in your sport, in the process of following your budget and adhering to it. As your income grows, consider using budgeting apps like Mint, YNAB (You Need a Budget), or PocketGuard to track expenses automatically. If you become a high earner, a financial advisor can help you manage larger sums and keep you accountable to your budget.

To prepare your monthly budget you can follow the simple steps listed below:

• Gather any financial documents you have available like bank statements, phone bills, credit card bills and any other information regarding your sources of income or expenses.
• List all your income sources and total them for the month. In your case, this may include an allowance, monetary gifts, part-time work, or side hustles like freelancing, tutoring, or selling items online. Apps like Fiverr, Upwork, and Etsy allow young people to earn extra income easily
• Write down a list of all the expected expenses you plan to have over the coming month. This includes any mortgage or loan payments, insurance payments, groceries, utilities, and everything you spend your money on.
• Separate your expenses into fixed and variable expenses. Fixed expenses will be relatively the same each month (i.e., monthly rent) while variable expenses are the ones that change according to your needs and wants and may include groceries, gas, travel, entertainment and so on. Remember that variable expenses are the ones which you will be able to adjust, meaning that it will be the money you will have to cut down from when you need to balance your budget, if you are in a tight spot.
• Calculate the total of your monthly income and monthly expenses and if you have more income than expenses, you are off to a good start. You can use this excess for savings or for any other investments or repaying early any loans you may have. If your expenses are higher than your income, you will need to start making some cuts in your expenses or find ways to make more money.
• Try to adjust your spending, so that your income is always greater or at least equal to your expenses. This means all of your income is accounted for and budgeted for a specific expense, savings goal or investment.
• Review your budget on a regular basis in order to stay on track. At the end of the first month, take some time to compare the actual expenses you made against the ones you wrote down in the budget as anticipated expenses. This way you can see where you did well and where you need improvement.

 

Action Steps – Exercise 4 (20 minutes):

Let’s prepare our Budget!  Based on the instructions/guidelines provided above try and construct your budget.  After you are done, we will have three athletes present their budgets and discuss how these budgets reflect their short-term, medium-term and long-term financial goals.

The financial planning process

Just like any other decision-making process, financial planning includes the following steps which we will go through by using yourselves as an example:

1) Determine where you are now financially

In this first step of the financial planning process, you will determine your current financial situation with regard to income, savings, living expenses, and debt; basically, all the sources of making money and spending money (financial obligations). Preparing a list with all items where you can make or spend money will give you a foundation for financial planning activities.

You have just signed your first contract with a major MLS club. Your guaranteed take-home compensation (after tax) is $168,000 per year, meaning $14,000 per month. Down the road you may pick up some endorsement deals and sponsorships, but nothing for now. What you struggled to pay for in college now seems so easy so it’s time to treat yourself with some nice things but also set important financial goals.   Your monthly expenses include paying for your cell phone bill, groceries, utilities, paying for your new lawyers/advisors’ fees since you have them on retainer, ordering take-away food, going out for dinner, your Netflix subscription, buying your favorite smoothie every day, saving for a new Rolex watch and of course your retirement savings as the prudent person you are!  You want to buy the new Rolex in the next six months, which costs US$12,000 so you are saving to come up with the necessary money. Let’s create a budget by listing all your current monthly revenues and expenses:

Monthly Budget	US$ Expenses	US$ Income
Monthly income		14,000
Monthly expenses:
Rent	2,000
Utilities	200
Groceries	400
Cell phone bill (average usage is $80 per month)	80
Ordering food out 4 times per month @$25 each	100
Smoothie (30 days per month @ $5 per day)	150
Netflix subscription	10
Advisors’ fees	3,000
Going out for dinner (4 times per month @$100 each time)	400
Buying personal toiletries, clothes, shoes, etc.	2,000
Donations and philanthropic contributions	500
Miscellaneous	160
Emergency fund (savings)	1,000
Retirement (savings)	1,000
Investment fund (savings)	1,000
Saving towards the Rolex	2,000
Monthly Totals	14,000	14,000

 

2) Decide where you want to be financially over a period of time (developing financial goals)

Specific financial goals are vital to financial planning. Your financial goals can be short term, medium term or long term. They can range not only in terms of duration, but also in terms of size and magnitude. It’s ok to have financial goals that may seem to be either too easy to reach or very unrealistic, as long as you are working towards them. It is your decision to set these goals and it’s your responsibility to judge them, keep them or change them. To be successful, you should periodically analyze your financial values and goals. This involves identifying how you feel about money and why you feel that way. You should also evaluate if these goals are being met, if they are within your reach, or if they must be changed. The purpose of this analysis, among other things, is to differentiate your needs from your wants.

One of your short-term goals is to get that Rolex six months from now, so you are saving about $2,000 per month for it.  Also, you want to take your whole family for a trip to London next summer where the European football championship is taking place; that includes your parents, your sister and her boyfriend and your brother with his fiancé. London is a very expensive city and the tickets for the games you want to attend are also expensive. You estimate that the trip will cost $24,000.  A long-term goal you have is to be able to buy a condo since you want to be a homeowner, 5 years from now.  The condo costs $400,000 and you want to put a 50% down payment and borrow the other 50% from the bank.  Therefore, you need to figure out a way to save first the $12,000 you need for the Rolex within the next 6 months, $24,000 for the trip within the next 12 months and the $200,000 for the condo down payment within the next 5 years.

Action Steps – Exercise 5 (10 minutes):

• Ask the athletes “How would you go about saving money for the above financial goals?” Come up with at least three different alternatives”.  Continue with a discussion of the athletes’ answers.

3) Identify the way to achieve your financial goals, how to get there

Developing alternatives is crucial for making good decisions. Although many factors will influence the available alternatives, possible courses of action usually fall under the categories of continuing the same course of action, expanding the current situation, changing the current situation, or taking a new course of action. Considering all of the possible alternatives will help you make more effective decisions.

In connection with your above goals, you realize that you will be able to save the money for the Rolex watch within the next 6 months since it is well within your budget.  However, if you want to go to that trip in twelve months, you will have to save another $2,000 per month for that as well.  In addition to that you have the condo down payment savings to deal with, which even though long term (5 years from now), you need to have a plan in place because the amount is quite large, and you need a longer time horizon to come up with it.  So, what are your alternatives?  Perhaps you could increase your income by saving the money that you might receive from the sponsorships your agent is negotiating.  It might lead to an additional $50,000 this year.  However, what if that doesn’t go through?  You need to have a plan B.  Of course, instead of doing that or perhaps in addition to that, you could cut down on some of your expenses which are not absolutely necessary like your daily smoothie or the multiple dinner meals, take-away food, the amount you spend on clothes and shoes— let’s face it, you’ve been a bit excessive since you signed the contract. 

Action Steps – Exercise 6 (10 minutes):

• Ask the athletes “What do you think of the above alternatives, are they feasible? Would you rather increase your savings or cut down on your costs and why?”  Continue with a discussion of the athletes’ answers.

4) Consider the different ways of getting there, that is, achieving your financial goals

You need to evaluate possible courses of action, taking into consideration your life situation, personal values, and current economic conditions. You should remember that each alternative has its own consequence, its own possible cost and its own possible risk. You will undoubtedly need to sacrifice some things to gain others. In many financial decisions, identifying and evaluating risk is difficult.

You are simply overwhelmed with all of the alternatives you have identified in order to achieve all of your financial goals.  You really want to count on the sponsorship deal, but you are not really sure that it will go through.  Everything spins in your head, and you are rather confused when evaluating your alternatives.  It seems that for every alternative, you have to give up something, so you need to prioritize according to your needs and your values. You thought about cutting your savings but then you realized that if you do so, you will probably end up harming your future wellbeing.  You also don’t want to stop your monthly donations because this is your way of giving back and helping those in need.

5) Create your financial game plan

In this step of the financial planning process, you develop an action plan. This requires choosing ways to achieve your goals. Remember that in order to implement your plan, you have to consider your needs and your values.

You have given everything a lot of thought and you have finally decided what to do.  You will concentrate on your short- and medium-term goals first and then deal with your long-term goal.  After all, if everything goes well, your peak earnings are still to come and if everyone is right about your talent, those earnings will be substantially more than now. Your short-term goals are:

• Purchasing the Rolex in 6 months and you are already budgeting $2,000 per month for this
• Saving $24,000 within the next 12 months to take the family on the London trip, which means that you need to save another $2,000 per month for the next 12 months.

How will you do that, given that your current monthly budget does not allow you to spare any money after the money you put away for the Rolex?  You have decided that for the next 6 months you need to change things a bit since you have to save another $2,000 per month for next year’s trip while saving for the Rolex as well.  After the next six months, things will be easier because you will not have the $2,000 per month for the Rolex purchase and you can use that money towards the trip savings.  You have decided that you will not count on the sponsorship money because of the risks of not actually getting the money or not getting the amount you estimate you need. Therefore, you will be cutting back on expenses:  You will be going for dinner twice a month instead of four times which saves $200 per month.  In addition, you have decided that your clothing and shoes spending, be reduced to $1,200 per month for the next 6 months so there is $800 per month saving there.  You’ve been spending way too much on clothes anyway, and $1,200 sounds much more reasonable. You decided that you will maintain the same spending levels even after the first 6 months since they seem sensible, and this way you will manage to save the money you need for the condo down payment.

Your monthly budget for the next six months will look like this:

Monthly Budget	US$ Expenses	US$ Income
Monthly income		14,000
Monthly expenses:
Rent	2,000
Utilities	200
Groceries	400
Cell phone bill (average usage is $80 per month)	80
Ordering food out 4 times per month @$25 each	100
Smoothie (30 days per month @ $5 per day)	150
Netflix subscription	10
Advisors’ fees	3,000
Going out for dinner (4 times per month @$100 each time)	200
Buying personal toiletries, clothes, shoes, etc.	1,200
Donations and philanthropic contributions	500
Miscellaneous	160
Emergency fund (savings)	1,000
Retirement (savings)	1,000
Investment fund (savings)	1,000
Saving towards the Rolex	2,000
Saving for the trip	1,000
Monthly Totals	14,000	14,000

After 6 months when you have purchased your Rolex, you can save an additional $2,000 per month for the trip.  At that time, you will have already saved $6,000 for the trip and you will need to save another $18,000 in the next 6 months.   After another 6 months (a year from now), when you will be done with saving the trip money, you will start saving $3,000 per month for buying your condo.  You will have about 48 months to save the $200,000 which is quite doable because you will be saving $3,000 a month quite easily.  This will mean that you will have saved $144,000 in 48 months and you will of course by then get salary raises and sign a couple of endorsement deals and sponsorships, which you will make sure that they are used towards the down payment for the condo purchase.

Action Steps – Exercise 7 (10 minutes):

• Ask the athletes what they think of the above budget and financial plan. Would they do things the same way or would they do something different.  Continue with a discussion of the athletes’ answers.

6) Constantly check in and adapt your financial game plan if necessary 

Remember that this is a dynamic process, meaning it changes very often and doesn’t necessarily have an end point. You need to regularly assess your financial decisions and your financial standing at that point. It is very normal to make changes, and you should not be afraid to do so. It is a trial-and-error sort of process, after all.  You should recognize that having the necessary discipline, consistency and flexibility to stick to your plan, without being hesitant to change the things that don’t work, is the cornerstone for success in this endeavor.

Let’s say you have received a sponsorship of $100,000 a year down the road.  What will you do with that money?  Will you save it towards the down payment for the condo purchase and allow yourself to spend more on clothes and personal items, or will you put it straight into your retirement fund and continue with your existing saving and spending plan?  It is up to you how you want to adapt your financial game plan to better serve your life goals and different people usually make different choices.

Large asset purchases

Large asset purchases usually come with both obvious as well as hidden costs, which you need to understand before you proceed with buying any large asset.  Large asset purchases usually involve buying a house to live in, a vacation home, or a car, etc. Before making such a big decision, using online tools like Kelley Blue Book, Edmunds, or Carvana can help you research car values, financing options, and total ownership costs.

When large asset purchases are involved, there are two questions you need to answer:

1. How much can you afford to spend
2. Whether you have the option to acquire use of the asset through leasing or rental.

After the above questions are answered, you need to analyze the buy/rental or leasing options through an applicable long time-horizon, like the timeframe of the mortgage when it comes to buying a house, or the timeframe of the auto loan if you are buying a car.  An analysis of your options may reveal that within a 30-year timeframe, renting makes more financial sense than buying a house, due to the high annual expenses that come with a house purchase, such as real estate taxes, insurance, etc.

1. Buying a house or a vacation home

Buying a house is an emotional process.  It is very easy to give in to your emotions and proceed with buying your ‘dream home’ which however may be way out of your budget.  Professional athletes usually get traded every few years and they need to relocate to a new city when they are traded.  Some of them may investigate buying a house in the new city, believing that they will be there for a while; some of them may prefer the rental option which gives them greater flexibility.

Buying a home, may seem like a good investment because instead of paying rent, your payment goes towards the mortgage, and the house will end up being yours after you have repaid the loan.  However, it all depends on various factors; the location of the house, the type of mortgage and interest rate that you pay, the purchase price of the house, the annual amount of real estate taxes that you pay, whether the real estate market was high or low when you bought the house, and so on.  If you bought an expensive house when real estate was high, in a neighborhood with high real estate taxes, with little down payment and a high mortgage interest rate, while shortly after real estate prices are beginning to fall, then you have probably made a wrong move!  Also, in the case of a vacation home, you need to be practical about it and do not let emotions overcome you in buying an expensive house which you will use once or twice a year and it will be just sitting there, incurring expenses for you.  Unless you are nearing retirement, have excess cash and plan to use the vacation home extensively, you should consider using a rental villa or a luxury hotel for vacations.  These options usually make more financial sense, and they give you the flexibility to go on vacation wherever your heart desires; they do not tie you down to one place.

The expenses usually related to owning a house are:

• Mortgage payment
• Real estate taxes
• Any other taxes
• Water, sewer and garbage collection costs
• Insurance
• Repairs & maintenance

When it comes to buying your main home or your vacation home, you need to be realistic and make rational choices by thoroughly investigating all options and deciding based on the facts and not on emotion.

2. Buying a car

When looking to buy a car, you have various options that come with different price tags.  New cars are usually more expensive than used cars.  Also, the brand of the car is a major factor in its price; the cost of a Ford is nowhere near the cost of a Ferrari!  Other factors that you need to look into are the amount required for down payment, the interest charged on the auto loan, the monthly auto loan payment amount and the timeframe it will take to repay the loan.

When buying a car, you need to balance the need and the want.  You are buying a car for your daily transportation needs, which represents a necessity.  At the same time though, you want to buy a car with which you can experience the ‘ultimate driving pleasure’.  Given your budget, you will have to balance these two competing forces and decide on a car which will satisfy the basic need of transportation first and then the ‘driving pleasure’ aspect.  You will have to bear in mind that a car, no matter what the brand is, loses a substantial amount of its value once it hits the road.  Therefore, you need to be practical and choose an affordable and reliable car.

When financing a car, key factors to consider include:

• Down Payment: A larger down payment reduces your monthly payments.
• Loan Term: Shorter loans (36-48 months) have higher payments but less interest, while longer loans (60-72 months) have lower payments, but more interest paid over time.
• Interest Rate: Your credit score affects how much interest you’ll pay. Lower credit scores may result in higher interest rates, making the car more expensive overall.
• Total Loan Cost: A lower monthly payment may seem appealing, but stretching payments over a longer period increases the total cost of the car.

Beyond the purchase price of a car, you need to also consider these ongoing expenses:

• Gas or Charging Costs: Fuel prices vary; electric vehicles (EVs) have lower fuel costs but higher upfront prices.
• Insurance: Rates depend on your driving record, car type, and coverage level.
• Car Registration & Taxes: Annual fees vary by state/country.
• Maintenance & Repairs: Oil changes, tire replacements, and unexpected repairs add up.
• Parking & Tolls: If you live in a city, consider the cost of parking and road tolls.
• Warranties & Extended Coverage: Some used cars may require extended warranty purchases.

After you have estimated the monthly cost of the above incidental expenses, you need to add it to the monthly auto loan payment, and this will represent your total monthly cost of owning a car.  Once you calculate this figure you will have all the relevant facts to decide as to whether you can afford the car or not and whether it is worth buying it after all!

Athletes’ salaries and the reality of uneven cash flows

Athletes are lucky enough to be earning substantially higher wages than the average person, and most of the well-paid jobs out there. Nevertheless, this comes with a huge caveat.  This caveat is called uncertainty of uneven cash flows or in simpler words, the fact that you may find yourself making $1,000,000 today but $50,000 in a year from now and vice versa. You may think that it doesn’t really matter, because at the end of the day you’re still earning good money but in reality, things tend to be way more complicated.

Let’s take an athlete with an average career of ten years. During the first few years, the athlete is a rookie and is more likely to be paid good money, without having yet reached their peak contract. Half-way through their careers, at about the fifth to sixth year, athletes will probably be making more money than they can even imagine given that they’ve reached their peak of performance and fame and are able to leverage it through immense contracts. Towards the end of their careers, athletes still make good money, but they’re no longer considered as a future asset and thus their cash flow will be much lower from their peak contract, given that the younger generation of athletes will start taking over the big contracts. Finally, after ten years have gone by, athletes find themselves with close to zero income, a sudden and dramatic drop from their previous contract. In the cycle described above, there are about four -rather dramatic- changes in cash flows within ten years. This does not happen in any everyday job, and this is what you need to be prepared to tackle, plus the fact that every season, the athletes’ budget needs to cater for spending during off-season when athletes don’t get paid.

You need to think of your income as the pizza you have delivered to your home on a Friday night; realize that the money you make in your career will practically compose your income in the future too. If you want to wake up to a nice Saturday morning brunch, which is composed of leftover pizza (something of course that no one recommends you do often for health and sport reasons) you will need to plan how many pizza slices you’ll consume on Friday night and how many you will save for the next morning. It is exactly the same thing with the planning of your financial future, throughout your lifetime.

If you discipline yourself towards saving, no matter how much money you will make, you will achieve financial success in the long run. Even if you have times in your career where your income will not be as high, you will still be able to cater to your needs and wants because you have been preparing for that time, through proper saving and financial planning.

Another important way to tackle the uncertainty of uneven cashflows is to create alternative sources of income, while you’re still a professional athlete. Investing your money in one, two, five or even ten-year investments will generate cash flows at points in your life that right now you have no idea how much money you’ll be making, or if you’ll be making any at all. These alternative sources of income can act as a catalyst when it comes to making sure that you’ll be able to afford a good life, irrespective of how much you’re making at that time.

Having discussed the importance of planning and alternative investments, which together make up the majority of the solution to the issue of uncertainty, we should also discuss the prevalence of an unexpected financial setback, during or after your career. These kinds of setbacks happen every day to all of us and can take any form. Your investments may turn out bad, or your career may end earlier than expected; so, what do you do in these cases? You make sure that you have a proper insurance policy in place that will cover you from such setbacks. Insurance companies are willing to create any plan that will suit your needs and it’s recommended that you create a plan that covers such cases.

Managing your money throughout the different stages of your career

As already discussed, the career and financial cycle of an athlete is different than that of any employee or business owner.  The peak of an athlete’s career along with the high earnings and substantial cash flows takes place early in the life of the athlete.  Hence, the athlete is required to have in place a financial plan which will cater for the post-retirement days.

Financial planning must start from the first day that athletes sign their first professional contract, no matter how big or small such contract is.  Athletes need to set up a money management plan, which will be continuously updated to cater for the different stages of their sports career.  A professional athlete’s career consists of three different stages.  We will go through each stage below and for each stage we will identify the main objectives of the corresponding money management plans.

Stage 1: The Rookie Days

This is where your career, cash flows and earnings begin.  In the beginning, these earnings are usually small but so are your expenses and obligations. This is the point where you must set up a specific spending plan. Setting up a spending plan is an easy process which will help you acquire a clear understanding of your spending needs. Also setting up a spending plan will help you figure out how much money you can save in order to reach your long-term financial goals.  The process of drafting a spending plan is fairly simple: First you have to define what your take-home (or disposable) income is.  Then you should list the bills you have to pay every month, such as your mortgage or rent, car payment, insurance premiums, utilities and other living expenses. Once you have that, you can simply subtract your expenses from your disposable income.  If you’re close to zero or get a negative number then it means you have to take a second look at your non-essential expenses, such as entertainment and travel.  These items are easier to trim if you are already spending too much or if the money spent on those items is needed elsewhere.

The goal is to adjust your spending until you’re spending less than you make or are saving enough to meet your other financial priorities such as creating an emergency fund, paying off credit card debt and saving for retirement.

Stage 2: The Prime Days

If things work out fine for you in your rookie days, you are now at the peak of your career and consequently at your top earning bracket.  With increased income, it’s tempting to upgrade every aspect of life—bigger houses, luxury cars, and extravagant spending. This is called lifestyle inflation, where expenses rise to match income. Avoid this trap by limiting large purchases, sticking to a spending plan, and focusing on wealth-building strategies.  It is understandable that there are certain things that you wish to purchase that you could not afford before and you may also want to upgrade your standard of living.  However, you need to always make sure that you spend less than what you earn and that you save enough money for the future.   Your main goals during this period should be the following:

• Eliminate any debt strategically:
  • Pay off high-interest debt first (credit cards, personal loans).
  • Consider the avalanche method (paying off the highest-interest debts first) or snowball method (starting with the smallest balances for motivation).
  • Avoid unnecessary new debt, even when income increases.
• Get proper insurance coverage
  • Health Insurance
  • Life insurance
  • Disability insurance
• Create your children’s college funds
• Create your retirement fund
• Start working on your investment portfolio

Stage 3: Nearing Retirement

When you are nearing retirement from sports you have to start working on your transition strategy.  Usually, athletes are correctly advised that one of the things they must do is to create a parallel business into which they can transition when they retire from sports.  In addition to creating a parallel business, there are other things that athletes can do in order to create alternative passive streams of income.  With the guidance of a financial/investment advisor you can use one or a combination of the below, in order to create passive income inflows:

• Create a stock/bonds portfolio

Build a stocks/bonds portfolio in order to create streams of income from dividends, capital gains and interest income.

• Invest in real estate

Investment in property can be transformed into a fully-fledged revenue generating retirement program, if done carefully and with a long-term view.  Investments in property can generate steady rental income and their long-term appreciation may be cashed out when selling the properties.

• Index funds

Investing in an index fund means that the fund will handle matters like choosing specific investments which mimic a stock index, rebalancing your portfolio, or knowing when to sell or buy individual companies’ stocks so that you don’t have to worry about managing your investments.  In addition, history has shown that index funds tend to earn more than mutual funds in the long run.

The key to achieving financial freedom through money management is determining your financial goals and setting up an appropriate plan to achieve them.  Different career stages and life circumstances will definitely necessitate regular updates to your money management strategy.  However, proper planning and constant monitoring will provide you with the tools to adjust your money management strategy to your career changes so that you maximize your wealth.

Action Steps – Exercise 8 (10 minutes):

• You have just signed your first big sports contract in the millions. What will you do with that money?
• Will you look for a financial advisor or will you put it off for later. Justify your answer.

Money management strategies for athletes

The phrase “Mo Money, Mo Problems” from Notorious B.I.G’s hit song perfectly describes the financial struggles of high-earning athletes. Many sports stars, including Mike Tyson, Allen Iverson, and Antoine Walker, earned millions during their careers but lost it all due to poor financial management.

At the same time, smart financial planning has helped athletes like LeBron James and Magic Johnson build long-lasting wealth through smart investments and diversified income streams. The difference? Money management strategies.

Along with their on-field success, athletes might find themselves in a position where they need to properly manage their increasing income very early in their career, without the help of proper advisors and without having the financial knowledge to do so. Smart money management is essential for achieving personal or family goals, not only at the beginning, but through all stages of your career and life, such as when you start a family, buy a house or start your own business.

There are unlimited ways and strategies to manage money. Below we propose 6 money management strategies that any athlete can easily implement, whether he or she is just shopping for food or actively trading in the equities market:

1. Track where you spend your money

To track your expenses efficiently, use budgeting apps like Mint, YNAB, or Monarch Money, which automatically categorize and track spending. Many banks also offer spending insights and alerts to help you stay within your budget. Whether you use an app or a simple spreadsheet, the key is knowing exactly where your money goes to control spending.

You can separate your expenses in needs and wants or be more detailed and separate them into categories such as entertainment, food costs, travel and transportation, etc. Total each category to see where your money goes.

2. Create an emergency fund

Living paycheck to paycheck is not only irresponsible but it’s also very dangerous. Any decrease in your income, caused let’s say by an injury or termination of a contract with a team or a sponsor, can bring havoc to your lifestyle and even worse, send you to a spiral of debt.

As we have already seen, the rule of thumb to creating an emergency fund is to have about twelve months of living expenses in a very liquid account in case anything bad happens. An emergency fund is your financial safety net. The ideal amount is 6 to 12 months of living expenses, stored in a high-yield savings account (HYSA) for easy access and better interest rates than regular accounts. For athletes who face contract uncertainties and risks of injury, having a well-funded emergency reserve is non-negotiable.  If you are the kind of person who needs gradual change, you can start by setting up an automatic deduction of 5% of your paycheck and transferring it to a separate emergency account. If you want to build up your emergency fund faster, you can increase this rate to a percentage you feel comfortable with.

3. Create alternative sources of income

You might have the feeling that the money you are currently receiving as a salary from your sports contract is more than enough to ensure you have a lavish lifestyle now and after the end of your playing career. Unfortunately, that’s not usually true and there are many cases of athletes who went bankrupt after the end of their athletic career.  We have talked about the fact that as an athlete you have the ability to earn off-the-field income by signing endorsement deals or setting up a parallel business; adding other streams of active income to your sports salary should be a priority for any athlete.

4. Automating your finances

The most difficult part of implementing and sticking to any money management strategy is finding the willpower to do so and making the effort. Being your own worst enemy in this case, you need to remove yourself from the equation by automating your savings, bill payments and investments.

Automate your finances to remove human error and temptation:

• Automate bill payments to avoid late fees and credit score damage.
• Set up automatic transfers for savings, investments, and emergency funds.
• Use robo-advisors (like Wealthfront or Betterment) to automatically invest your money based on your goals.
• Round up spare change using apps like Acorns to invest small amounts effortlessly.
  This ensures that wealth-building happens in the background, even when you’re busy playing.

5. Saving for retirement

Retiring does not always mean that you will stop working; it means not having to work for money.  To be able to do that, you need to create passive income through a retirement fund that will pay you a stable income every year for the rest of your life. To create such a fund, you need to start with a principal amount, $100,000 for example, which you will invest in a mix of investments that will give you a return of 5% a year, or $5,000. Then you pay yourself 4%, or $4,000 and leave the 1% to be reinvested.  If you start with a higher principal, let’s say $500,000, then 4% a year is $20,000. 4% of $1,000,000 is $40,000 a year. Building a retirement fund that can produce income for the rest of your life should be the ultimate goal of any money management strategy.

6. Have a plan and stick to it

Once you know how much money you earn and how much money you spend, you need to create a plan through which you need to align your financial goals with your spending habits.

For example, if you have just a few days a year for vacation and you love spending this time in a luxury tropical destination, you can easily fit the necessary cash outflows into your spending plan. But, if you have set as a priority to buy a house for your parents by the end of the year, then you will need to plan on cutting expenses elsewhere and modify your long-term spending plan to accommodate such a large outflow.

Action Steps – Exercise 9 (10 Minutes):

Ask athletes whether they have already adopted any money management strategies in their lives and ask them to describe them.  Continue with a discussion.

Sustaining financial success in your post-peak performance years

The peak performance age or “sweet spot”, as many call it, is a period where athletes are at their apex of physical strength, technical and mental abilities, and in most sports this sweet spot falls mostly between the mid-20s’ and early 30s’.

The athletes’ finances are correlated with their performance, and the performance cycle of athletes affects their finances and income. During the athlete’s peak performance period the athlete usually enjoys the highest earnings of their career in terms of sporting compensation as well as in terms of sponsorships and endorsements. During their post-peak-performance years, athletes usually receive a lower compensation for their athletic services. In addition, most athletes tend to have less income from sponsorships and endorsements in their later years since brands prefer to utilize younger athletes who are at the peak of their performance, fame and recognition.

To maintain financial success during their post peak performance years, athletes need to plan ahead; one way of doing that is by building their brand from day one. An athlete’s brand can be built in such a way that the athlete can be transformed into a local, national, or global signature brand, which can be leveraged to sell, endorsed and make a profit.  Athletes can build and capitalize on their brand by creating proper personal marketing strategies, with well-defined branding activities which are in line with their financial life plan. Strategic building of the athlete’s personal brand is crucial because it must be clear which values they bring to the table, to stand out from the rest of the crowd. By building their brand, athletes can create and sustain substantial income which does not depend exclusively on their athletic performance.

In addition to the above, when athletes are at their peak and have substantial earnings, they should implement a sound saving strategy; a sound saving strategy is the cornerstone of a financially secure lifestyle, accommodating any possible setbacks in their career, irrespective of their athletic performance.  Setting money aside each month builds a foundation for establishing future wealth which can be used in many ways: as an emergency cushion; for retirement as average life expectancy grows and government pensions are volatile, etc.

Last, the athlete should create sources of alternate/parallel income which are not related to, nor correlated with their athletic performance. This income may be in the form of an investment portfolio, real estate portfolio or by setting up their own business. It is important for athletes to identify what their goals and dreams are, outside of sport, so that they start working on them during the early stages of their career. Before deciding on any of the above, athletes should always seek the help of financial and business advisors who may help them navigate the difficult world of investments and entrepreneurship.

Whether investing in your personal brand, saving while earning high, setting up investments and businesses or a combination of all the above, you need to make sure that in your post peak performance years, your financial success is not dependent on your athletic performance. By creating a financial freedom plan during your early, high-performance years, you will be able to financially sustain yourself during your whole life.

Conditions that may affect your financial game plan

Recent global events, such as the financial crisis and the COVID-19 pandemic, have shown us that financial stability is never guaranteed. One day, income may be high, and the next, it may drop unexpectedly due to economic downturns, job loss, or personal setbacks. This is why preparing for financial uncertainty is essential for long-term success. One day you are earning high and the next you are earning low; one day you are earning a salary and the next you are without a job. Hopefully, this will not be the case for any of you and yes, the economy may be getting better right now, but it is a reality and a possibility that one day you may find yourself in this position.

If you are able to pursue a professional sport career, you should be prepared for the fact that each contract you sign will be different; if you are a professional athlete in the USA, especially in team sports, you will probably manage to receive the greatest earnings of your life in that specific time period. If you find yourself outside the US, your contract will be based on the financial conditions of that specific market and the particular characteristics of the sport you are in.

For example, if you play professional soccer in Europe, you will probably make more money than anywhere else in the world. If you are a basketball player, your best contract will be in the NBA and not Europe. If you are a golfer, you will realize that a lot of countries in the world will not be able to offer you the opportunity to be financially successful. It’s different in each sport and each situation for every person.

You should be aware though that one year you might struggle to get a good contract, another year you might have an injury that causes you to stay out for a long time, therefore your next contract might not be up to the standards you would have liked. Also, endorsements and sponsorships can provide significant income, but they are not guaranteed. These deals depend on performance, public image, and market trends. Diversifying income streams—such as personal branding, media work, or investments—can help ensure long-term financial stability beyond sponsorships. Most importantly, a sports career has an expiration date, and you need to remember that throughout your life, and plan accordingly for the day when you will no longer play sports.

The best way to tackle this situation is to be prepared for it. This is the case when you will have to make ends meet with uneven cash flows and a disrupted budget that needs to be adjusted.

Your financial game plan will be affected by several parameters in your life as you grow older. It could be the need to finance your own education in college, meaning that you will have to create financial resources for your education. Home ownership is another big issue, which always comes up at some point in your life. You will need to plan on how to finance this need, as well as other personal and family needs such as the need to purchase a new car, or take a vacation, or start a business and so on.

The bottom line here and the take-home message is that you need to be prepared for any unexpected occurrences, or occurrences that come with growing up; the best way to be prepared is to have a well-balanced budget, a fully functional savings plan and the determination to be fully disciplined in the long term in order to avoid financial risks.

Lesson wrap-up

This lesson was anchored in the core principles of financial planning, money management, and financial decision-making. To gain a comprehensive understanding of these topics, we explored how and why financial planning must align with your goals and values, the importance of managing cash flow, differentiating between wants and needs, and implementing effective money management strategies.

The key takeaway from this lesson is this: The financial decisions you make today, how you earn, spend, save, and invest—will shape your financial stability in the next ten, twenty, or even thirty years. Careful financial planning, disciplined budgeting, strategic saving, and smart investments are the foundation of long-term success, especially for athletes with unpredictable income streams.

At this point, we will wrap-up today’s lesson.  First, we will go over the learning objectives of today’s lesson to see whether they have been achieved and then, we will address any questions you may have.  Please feel free to ask anything you’d like in relation to today’s lecture, and we would love to hear how the concepts we discussed today, relate to you and your greater life plan.