By Iacovos Iacovides, Contributor
Financial distress is a fact of life and a lot of people including athletes will experience it once or even multiple times throughout the course of their lives. It is more likely to affect the have-nots; however, the rich are not immune to it. Financial distress refers to individuals who are simply unable to generate sufficient revenue to meet their financial obligations.
Athletes who fail to plan for the future, who spend above their means or who do not save and invest, are likely to experience this at the latter parts of their careers or during the early years of their retirement. Examples of athletes who found themselves in financial trouble include household names, such as Mike Tyson, Dennis Rodman and Dorothy Hamill. Indicatively, research from the previous decade suggests that around 80% of NFL players go broke within the first three years out of the league, as reported by Forbes. Similar figures have been reported for NBA athletes too.
In order to minimize the chances of finding yourself in financial trouble, you need to follow a few very simple steps. First and foremost, you need a budget that can help you ground yourself financially. Secondly, you need to make sure that within that budget you allocate money for savings and investment (including insurance). Thirdly, you have to accept that you have to live within – practically translates to below – your means. Fourthly, you have to appreciate the peculiarities of a sporting career and the relevant income cycles. Specifically, careers in sport are short, your income is directly correlated to your age and performance and therefore you will experience uneven cash flows. When you are at your peak, so will your endorsements, sponsorship deals and base income too. It should be noted that ideally you will have (at least) a financial advisor helping you out with these.
Irrespective of whether you are already in trouble or not, the first thing you need to do is to take all your bills and receipts and write down your expenses and then do the same with your income. This will help you locate the problem or problems and give you a better grasp of what is going wrong. Once you’ve identified where you spend most of your money, it’s time to rethink the amount you spend on those things.
To do that you need to revert back to the first step: draft a budget. A budget will give you the opportunity to look at the bigger picture and enable you to identify superficial spending. If you are already in debt, then you have to make sure that every effort is geared towards keeping that debt at bay. That means that you refrain from investing and probably saving in order to focus on repaying your debts. If you can’t start repaying the principal amount you owe, then you have to make sure that you start paying the minimum; that is, the interest which will at least restrain the problem. In principle what you need to do is lower your expenses, avoid making new purchases, stop taking on new debt and if possible increase your income.
The vital step, however, is to write down your expenses and think hard about what to cut. This decision should be governed by two fundamental principles: (1) Live within your means (2) Prioritize needs over wants. Once that is settled, it will free up some of your income which you can then use to eventually reduce the amount you owe.
Financial distress can be very… distressing to those who experience it and can be manifested mentally, but also socially, damage relationships, friendships and destroy families. It is, nevertheless, very important to understand that tons of people go through it and make it to the other side successfully. In other words, it’s not the end of the world, no matter how grim things feel. You will need a sound strategy, discipline, patience and self-restraint, among other things, to emerge in one piece from financial troubles.
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 [email protected].