By Vasilia Polycarpou, The Sports Financial Literacy Academy
Athletes succeeding in professional sports may find themselves acquiring extravagant amounts of money almost overnight. However, these same athletes may find themselves drowning in debt just as fast, as we have seen happen with boxing champion Mike Tyson, figure skating legend Dorothy Hamill and NFL quarterback Vince Young, among many others.
Using these examples as life-lessons, we realize that having a structured financial plan in place could have saved these athletes from a lot of trouble, since it could have helped them act more proactively or even completely turn their financial situation around before it was too late. Spending recklessly without thinking about the future can turn financial success into failure at the blink of an eye.
The first step to the financial planning process is not as complex as one may think. What an athlete needs to do initially is determine and assess their current financial situation. In other words, figure out where they are financially at this point in time, with regards to income, savings, investments, living expenses, bills and debt. To accurately keep a record of these, athletes need to gather all relevant financial documentation, which will allow them to prepare a list of all the ways they earn and spend money. This will provide a basis and foundation for their financial planning. Athletes can record their spending based on their transaction statements, which could easily be accessed via online banking, keeping everything down on an excel spreadsheet or even by simply making a table in their notebook.
The next step, would be to separate this data into two categories; income and financial obligations. Financial obligations could then be differentiated into fixed obligations and costs; which are those obligations and costs that do not change significantly per month, such as rent, insurance payments and loan payments; and variable costs, which could relate to grocery shopping expenses, clothing expenses, entertainment and credit card bills. Athletes can also try to keep a note next to each expense, identifying whether they would consider that as a want or need. Needs refer to things which are necessary for someone’s survival, whilst wants refer to things which can improve quality of life but are not vital.
What needs to be done next, is the calculation of total earnings vs total costs. If earnings exceed expenses, then the athlete is on track; otherwise, adjustments should be considered, keeping in mind the importance of taking savings and investments into account.
It is also crucial for athletes to set a predefined tracking period over which they record their spending. They could start off weekly at first, to see how it goes. Alternatively, they could track income and costs on a monthly basis, since a longer time period may provide them with a more realistic representation of their expenses. Once the tracking period ends, athletes can review the recorded transactions to identify any hidden costs, such as fees which were unaccounted for.
What athletes should remember during this process, is that assessing their financial situation can be seen as a financial wellness check, allowing them to determine the financial habits that would need adjustment for a financially sustainable future. Proper financial planning can help athletes enjoy life in a financially attainable way, whilst being able to handle any major unexpected expenses without catastrophic results.
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.