Pro Athletes and Their Money

One of the highest paying jobs in America is to be a successful pro athlete. The appetite for sports in our country is insatiable. TV ratings are impressive, especially for NFL games. CBS just premiered its Thursday night NFL game with monster ratings. The money that teams get for airing their games is off the charts. In pro sports, you have millionaire athletes working for billionaire team owners. Sports is entertainment, and entertainers get paid big bucks, whether one is an NFL quarterback, a pop music star or a movie star. Sports are the ultimate reality TV show when you think about it. Millions are watching things unfold live and it's a communal experience. Fans pack the sports bars and living rooms all over the country to experience the thrill of competition.

Athletes take big chances in order to earn the big paychecks. They sacrifice their bodies to earn their glory. Yes they are paid well, but only 1% of college athletes make it to the next level. Even then, their careers are often short, just a handful of years. When the big paychecks stop coming, they must have other career options. 78% of NFL players go bankrupt within 5 years of retirement. For the NBA it's 60%. When one makes a lot of money they often want to show off with expensive homes, cars, jewelry and clothes. Mike Tyson earned $400 million over his career but still ended up broke. Pro athletes sometimes see their money disappear due to corrupt business managers, substance abuse problems, divorce/child support payments, poor investments, legal trouble, and unwise choices in everyday life. What these athletes really need is education on the basics of handling money in order to make it last a lifetime. One thinks of the old adage "A fool and his money are soon parted".

The ESPN series 30 for 30 did a program about athletes and their money. Many prominent athletes are profiled and they talk about how easy it is to get confortable with a lavish lifestyle and waste the money over time. Watch it here.

Ten Tips to be Financially Fit

No matter who you are, managing money is a challenge. Here are some basic tips that will make it easier.

1. Invest automatically. Have your 401k/retirement investments taken out automatically each paycheck so you don't have to think about it. If your employer has a certain amount they will match with their own contribution, take full advantage of it. That's free money. Or, you can invest a certain amount automatically by using an online broker such as e-trade or sharebuilder. Start as early as you can. If you start investing at age 25 and want to retire at 65, you have 40 years for your money to grow. Time is money. Track your investments and make changes if your results are not satisfactory. Inflation is normally about 3% per year, so if your investment gains 3% per year, you have no real gains.

2. Don't buy a new car. The depreciation on a brand new car is rapid, the value drops as soon as it is driven off the lot. Buy a slightly used car, maybe one that is a year or two old. Even the rich do this (maybe that is why they are rich). The book "The Millionaire Next Door" points out that most millionaires do not buy new cars.

3. Banish debt payments. Do what you can to get rid of car payments, credit card debt, student loans, any other debts, and finally, house payments. Dave Ramsey says that debt is the #1 thing standing in the way of building wealth. Pay cash whenever you can. Why give the bank your money? Think about what you could do with your money if you had no house payment, no car payment, no credit card debt and the like. You could save tons for retirement, give to charity, and simply have peace of mind financially.

4. Avoid wasting your money on things like lottery tickets, rent-to-own businesses and payday lending services. The chances of winning the lottery are miniscule. Putting your money in a good growth mutual fund is a better bet. Rent-to-own businesses and payday lending services are scams that charge obnoxious interest rates.

5. Separate wants from needs. This is tough since in America we are big time consumers, being bombarded with advertising every where we look. Some feel pressure to keep up with the Joneses. You might want to buy a $50 shirt, but a $25 shirt will still do the trick. Sure, we'd all like to drive a Mercedes, but a Chevy might be 1/3 the price and it still gets you from pont a to point b. Give up on seeking status symbols, it is an empty pursuit.

6. Term life insurance trumps whole life insurance. Go with the no-frills, basic, convertible, renewable term life insurance. Sales people will try selling you whole life or universal life or annuities but those are a waste. The investment component of most whole life policies is poor. But, insurance agents love them since their commission is greater. Financial experts like Bruce Williams and Dave Ramsey recommend term life insurance. Do your investing elsewhere, not with insurance.

7. Make more, spend less, sell stuff. Want more money? You have three options. Make more by working overtime or getting a second job or a better paying job. Analyze your spending habits and spend less. Set up a monthly budget and stick to it. Sell things you don't need. Have a garage sale. Set up an amazon.com or an e-bay account to sell some possessions.

8. Diversify your investments. This means, don't put all of your eggs in one basket. If you have $1,000 to invest, don't buy $1,000 worth of stock in one company. Consider a mutual fund or an ETF (exchange traded fund). These will diversify your risk and invest in many stocks that compose one financial investment vehicle. Or you can choose an index fund, perhaps one that mimics the return of the S&P 500 or the Dow Jones Industrial Average. Vanguard and Fidelity are two of the top mutual fund companies. Analyze before you buy though. What is the track record of the mutual fund? How diversified is it? Does it have any international stocks (this may be good or bad)? what are the associated fees? Is it a no load fund (no fees for purchasing) or a loaded fund (you pay fees when you buy)? All mutual funds or ETFs are not the same. Seek out a financial advisor if you need assistance, or do your homework, as mentioned in the next tip. If you are dead set on buying individual stocks, make it a small part of your total portfolio, perhaps 10%. The stock market is incredibly resilient. It goes up and down, but over the long run, it generates a good return on your money. Those who stay with it for the long haul will do well. Buying and selling frequently is risky and the tax implications can be expensive. Beware of fad investing trends. When gold was at an all time high, we heard lots of ads telling people to buy gold. Why would you buy a commodity when it is at an all time high? Seems like selling gold would be a better move, then buy when it is cheap.

9. Seek out the experts, and educate yourself. Buy books by Dave Ramsey, Suze Orman or Clark Howard. Listen to financial radio shows or watch financial TV shows on CNBC. Get a subscription to Forbes magazine, Kiplinger's Personal Finance or The Wall Street Journal. It's amazing what you can learn on your own. Take a class at a community college about the stock market or personal finance. Community college classes are affordable and the instructors are knowledgeable. You'll get out of it whatever you put into it. Jim Cramer has a TV show and he writes many investing books. He is not a buy and hold advocate. He says to buy and homework (study your investments). Decide which approach is better for you. Some are risk adverse when it comes to investing.

10. It doesn't matter what you make, it matters how you handle it. This is perhaps the biggest tip to remember. How often have we heard about celebrities who made millions and ended up broke due to poor decisions? It happens all the time. A person who makes $25,000 per year might be better off financially than someone who makes $250,000 per year. The person with the high salary might be up to their eyeballs in debt, on the verge of financial ruin. The person with the modest salary might be a saver who is smart with money, building a nice nest egg a little at a time. Think about money decisions, look before you leap. The decisions you make today will determine your financial fitness in the future. The rich get richer and the poor get poorer for distinct reasons. The rich get richer since they know about money management, investing wisely and they put their money to work for them. The poor get poorer since they do not do their homework regarding investments and they make poor decisions with money on a day-to-day basis.

Thin Waist, Fat Wallet

As Americans, we struggle significantly with losing weight and being financially fit. In the new year, no doubt, many resolutions will revolve around those 2 subjects. These two concepts have more in common than you might think.



1. Both require making the right choices to produce favorable results. Different choices can make all the difference. What is the better choice: eating fast food and drinking pop, or eating foods like fruits, vegetables and whole grains and drinking mostly water? We all know the right choice, but we often choose the wrong one. Choosing exercise over a sedentary lifestyle is important too. Everyone will not be a marathon runner, but just 30 minutes of exercise per day can make a big difference. It can even be split up into 3 sessions of 10 minutes each. The key is to find something you enjoy doing. Financially, what is the right choice: spending money on frivolous things or spending it only on necessities? Let me clarify, I am not saying to never eat junk food or never buy something fun, but those who are physically fit and financially fit make the right choices the majority of the time. Different choices yield different results. What kind of results are you seeing?



2. Both require one to have patience, sacrificing short term rewards in exchange for long term benefits. It feels great to have lots of cookies or ice cream right now, but that action means we push back the time where we can be proud of weight loss. Nothing tastes as good as thin feels. It might feel great to go and buy a $500 new watch or new clothes right now, but that money spent now means it cannot be used for other, more important uses down the road. Many say they have no money for the essential things in life, but they seem to have plenty of money to spend on frivolous things. It has been said that money moves from those who don’t know how to handle it, to those who do know how to handle it. It is all about priorities, and being patient. Too many people say that they want to be thin right now, or they want to be rich right now, but those who practice patience, and restraint, get the best results. The old adage is true, patience is a virtue. Get rich quick or get thin quick programs are scams that will not work over the long term. In building wealth, time is the investor’s best friend. If a person makes $40,000 per year and they put 5% of their gross income into a 401k that earns 8%, starting with a balance of $1,000, if they invest from age 25 to age 65, they will have $1,176,915 at retirement. If only 1% more is invested, the balance would be $1,407,954, about $230,000 more! It is not about how much we make, but how much we spend (or don’t spend). Plenty of people who make 6 figures or even 7 figures, end up broke since they do not manage their finances well. Conversely, many people who make a small income are perfectly able to pay for a decent place to live, a decent car, and other needs.



3. Both losing weight and gaining wealth can be accomplished by making small, incremental changes that add up significantly over time. Suppose that someone spends $8 per day eating out at lunch time. Do this 5 days per week and that adds up to $40 per week, and 52 weeks per year adds up to $2,080 per year. That is a lot of money. Think about what you could do with $2,080. You could pay off debts, take a vacation, buy gifts for others, or invest it. Losing weight is the same way. 3500 calories reduced per week can yield one pound of weight lost. That breaks down to just 500 calories per day. Examine what you eat, and examine where you can cut out 500 calories. We can all do that. So many times, calories are taken in without even thinking about it. How many of us mindlessly snack on chips or cookies or other junk food without thinking about how many calories we are taking in? I have found that paying attention to liquid calories is essential too. It is easy to drink 500 calories worth of pop or other drinks without even realizing it. One pound lost per week may not sound like a lot, but over a year it is 52 pounds.