By Constantinos Massonos, Contributor
When athletes, after years of hard training, finally gain professional status through earning a place to compete in top sports events or through signing a playing contract, they need to be prepared to manage the money they will subsequently earn. Through the Money Smart Athlete Blog, we have thoroughly addressed the potential pitfalls professional athletes should avoid during their careers, as also the most efficient ways to manage their money in order to attain financial freedom.
The lack of financial literacy, not only in athletes but also in the general population, can often lead to misconceptions, as in the case we discuss today, where the words money and wealth are very often used interchangeably. Professional athletes with a high income, can follow a lavish lifestyle, usually spending most of the money they earn to support it, ending up living paycheck to paycheck. So, should these athletes, who appear like they have all the money in the world to spent, be considered wealthy?
The answer is No! Earning a monthly check with lots of zeros pinned at the end, does not equate to being wealthy, especially when mismanaged; not understanding the difference between the two can lead to financial collapse and bankruptcy. So, what is wealth and how is it different from having money?
Well, simply put, wealth is all the assets of value, tangible and intangible, a person owns minus their debts. A wealthy individual is a person who has accumulated revenue-generating assets of high monetary value and at the same time has low to zero debt. Net worth is the most commonly used measure of wealth and can be calculated by attaching a monetary value to assets and then subtracting the debts from that value. Money is not only a form of asset a person may own but it is also a measure of a person’s net worth. Thus, having lots of money at any given point in time, does not automatically make you wealthy, if for example you also have considerable debts.
Professional athletes know very well that you need to be good both defensively and offensively to win a game; that means that the worst-case scenario should always be included in their financial plan. What would happen if an athlete is faced with a career ending injury? Are they wealthy enough to sustain their current lifestyle and provide for their families? Have they put alternative income streams in place? How long can their savings sustain them?
So how can a person with a high income, like a professional athlete become wealthy? It all comes down to following the basic concept of spending less than what you earn and living within or below your means. Then, the road to building wealth and attaining financial freedom includes increasing your savings and choosing an investment plan that suits your goals and personality and at the same time, building up a team of trusted advisors that can assist you in all your critical financial decisions.
The Money Smart Athlete® Blog is established and run by the Sports Financial Literacy Academy® (SFLA). Through its education programs, the SFLA has the vision to financially educate and empower athletes of all ages to become better people, not just better athletes. For more information on our courses, our SFLA Approved Trainer Program®, and how they can benefit you and your clients, please get in touch with us at firstname.lastname@example.org.