The lure of celebrity beckons us all. We constantly see models, actors, NFL players and other professional athletes flaunting their extravagant lifestyles all over television. It’s a life we all might dream about from time to time.
Perhaps no one knows this better than Travis Higgins, an independent registered investment advisor (RIA) for Legacy Wealth Management in Boise, Idaho. Many of his clients are NFL players, and while not all of them sign $10 million contracts, even those making league minimum are exposed to a spendthrift culture.
Unfortunately, most NFL careers don’t last more than a couple years, and Travis sees way too many players “grow into” their incomes. The result? About 80 percent of former NFL players go broke within three years of leaving the league.
Coming down to earth
The NFL can be a ticket to a Hollywood lifestyle for players like Tom Brady. But Travis knows the overwhelming majority of players have to adopt a more practical approach to money.
“A lot of athletes go broke because they try to live that lifestyle, and it’s not realistic. Even if you make a few million dollars, you just can’t sustain that,” he said.
Trying to live a glamorous life sets many NFL players up for a major crash at the end of their careers. Even for the more level-headed players, making the right financial decisions doesn’t come easy. Travis admits that the general public’s perception of athletes and their spending habits isn’t always accurate. Usually, it’s a lack of saving, not excessive spending, that presents the biggest problem. Athletes also don’t understand that they will pay more than 50 percent in taxes on their earnings each year.
“The perception on the financial side for most people is ‘oh these dumb athletes blew all their money,’” he said. But it’s not hard to do the math and figure out that having $200k at a young age won’t last very long, especially when you have no other skills.
“These guys spend their entire lives perfecting a skill set, then have $200k at age 23, and their careers are over,” Travis added.
Growing into your income
Most people who earn a raise, or a large sum of money in a short amount of time, want to immediately spend it. This “live large” mentality is especially pervasive among those who earn high incomes but certainly isn’t exclusive to professional athletes or celebrities.
Travis also works with physicians who make upwards of $500,000 per year. They still remember their days in medical school when they lived on ramen noodles. But just as MindShift.money Founding Director Dr. Tony Pennells observed prior to starting his journey to Financial Freedom, some have even more Money Stress now than they did before their six-figure salaries.
Much of this has to do with pressure to live the lifestyle their income demands. Or, at least the lifestyle they perceive society demands. “If you make $500,000 a year, you tend to spend $500,000 a year. People just don’t save enough,” Travis said.
Since their careers won’t last forever, professional athletes must force themselves to save a significant portion of their salaries, Travis said. Doctors and other professionals may not need to save as much, proportionally. But everyone needs to Live Within Their Means. As his clients earn money, Travis advises them to make incremental lifestyle improvements, as opposed to large purchases.
“If you make an extra 25 grand, great, save 15 of it and increase your lifestyle by 10. Make incremental lifestyle increases, but make just as big saving and investment increases,” he said.
Freedom through Paying Yourself First
For Travis, Financial Freedom starts with saving. As a first step to building wealth, he tells clients to get out of debt, then start accumulating a nice buffer to cover emergency expenses. After that, one can start investing in a diverse range of asset classes, from stocks and bonds to rental property. Having this diversification protects investors from major drawdowns in the stock market.
If they do it right, Travis said his clients can come to him when they’re in a bind and get access to the money they have invested. But although saving and diversification are good general principles, no two financial plans should be the same. Investors run into problems when they start comparing themselves to the “Joneses,” wealthier people in their profession, and of course, the people on TV.
Not every NFL player can live like a five-time Super Bowl champion, and not every doctor can drive a Maserati like they do in movies.
“Where people get into trouble is they start comparing themselves to other people, other situations, and you’ll never be happy doing that. You get a plan for yourself, an individual plan for yourself, and block everything else out,” Travis said.
The views and opinions expressed are those of the guest author and do not necessarily reflect the views and opinions of MindShift.money.
image credit: Bigstock/Alena.K