Thanks to my Ohio roots, I’ve always been a huge football fan (Who Dey!). From going to Friday night football games as a kid and all through high school to my ritual of watching football all day on fall and winter Sundays, this is a hobby that I’ll never grow tired of. And for those who aren’t fans, there’s another very important football ritual that fans look forward to every year: The NFL Draft.
The NFL Draft is how fans can get a first look at the new talent their teams will be taking on in the next season. But besides getting an early look at the strategy for the next season, there’s another aspect of watching the draft that I love even more: seeing the looks on players’ faces when they get selected. In one instant, everything they worked for their entire lives comes to fruition. Their selection not only means that they’ll get to play professionally, it also usually comes with a fast track to a fat paycheck. Even 2nd and 3rd picks walk away with life-changing contracts.
Imagine being 21 years old and getting the job of your dreams with a multi-million dollar contract to match…
Since it’s so easy to think that more money is the best solution to money problems, my first thought is always, “Wow, how amazing it must be to get paid so much overnight and never have to worry about money again”. Of course, this doesn’t always line up with reality. As seen in our recent post about celebrities who struggle with money, people who suddenly receive bigger paychecks often just end up with bigger money problems. Athletes are no exception to this rule.
On that note, we’re exploring the lives of a few athletes who encountered major debt, why it happened, and how they got through it. There’s a lot to be learned – both in the form of cautionary tales and how to overcome seemingly insurmountable financial issues!
The Perils of Getting Too Much, Too Fast, and Creating a Lifestyle to Match
Let’s go back to the draft. Picture this, you’re in your early 20s and all you’ve ever known in your life was to excel at one thing. You’ve had your eye on the prize (the NFL) from day one and, in one moment, the prize is yours. You’ve now gone from college student to millionaire ball player.
That’s a lot to take in for someone who’s not even old enough to rent a car.
It should come as no surprise then that many athletes in this situation (no matter the sport) find themselves spending their money as quickly as they get it. They’re riding on the biggest high you can imagine and they want to celebrate a lifetime of hard work! Who can blame them? Problem is, it can get out of control quickly. Imagine lifestyle inflation to the greatest extreme.
Famous basketball player Shaquille O’Neal was so pumped up when he signed his NBA contract that he spent his first million in half an hour! Luckily, his banker was looking out for him and warned him of his behavior. Since then, Shaq has gone on to educate himself about finance and not only avoided bankruptcy, but he has also become an incredibly successful investor in multiple businesses.
Growing Your Money… With Ill-Advised Investments
Not all athletes pursue the financial education that Shaq did and for many this leads to making investments that go bad. Figure skater Dorothy Hamill pursued investments through her passion…and it didn’t work out in the end.
As seen in The Richest, Dorothy Hamill turned her Olympic success into a chance to find celebrity and financial success through endorsements and a career with the Ice Capades. She was so passionate about this endeavor that she ended up buying the Ice Capades company. The company couldn’t compete with its Disney counterpart and Hamill had to sell it and file for bankruptcy.
Since then, Hamill has turned her life around – even battling cancer – and is skating again and published two books. Rather than letting her failed investments and health crisis get her down, she’s on the road to rebuilding a financially sound and healthy life.
The Financially Devastating Effects of Divorce
Besides a failed investment, Hamill also dealt with multiple divorces, although it isn’t claimed that those were a part of her financial trouble. But that’s not the case for all athletes. Divorce can take a toll on anyone’s finances, but given the big paychecks athletes receive and the confusion behind some prenuptial agreements, the effect can be 10x larger than for a typical family.
Basketball player Kenny Anderson learned about prenuptial agreements the hard way when he lost a court battle against his first ex-wife, to the tune of $8,500 per month child support payments. Years later he stopped making these payments and they were back in court again, finally settling for $800,000. After this, Anderson decided to turn his life around by going to college and learning that money isn’t the be-all end-all of his existence:
“’Money didn’t make me,’ he says. ‘Did I spend a lot of money? Yes, I did. Foolishly? Yes, at times. I helped a lot of people, donated a lot of things. I ran a Kenny Anderson basketball tournament in Lefrak City for 10 years straight. No sponsors, no nothing. That’s out of my pocket — like, 30-, 40 grand a summer. Did anybody say anything? No, it don’t matter.
‘You know what? All that stuff? Everything that’s gone, and everything I’ve got now? It’ll all come back to me. I just know it. You can always get money. You can work. But my character, my integrity — they’re not going anywhere.’” — The Washington Post
While the picture isn’t all rosy (Anderson later lost a coaching job due to a DUI), his resolve to keep moving forward is something we can all learn from. Even the largest financial mistakes and a tough life event such as divorce can be overcome.
The Lessons Learned – And How These Situations Can Relate to Your Life
It’s easy to read these stories and think they have nothing to do with our own lives. Few of us will ever make millions in our lifetime, much less with the signing of one job offer. However, there are parallels to be found, both in the mistakes and the lessons learned.
Lifestyle Inflation Comes On Fast – Stop and Educate Yourself First
Whether your first paycheck after college is $20,000 or $20 million, the desire to inflate your lifestyle can come on fast. And once it gets started, it’s hard to contain. Think about it, after four or five years of college and living on ramen noodles, even a meager first salary feels like a windfall. Suddenly you think, “I need a new car to get me to work. I can’t drive a beater if I want to be taken seriously as a professional.” Or, “Now that I have a real job, I need to get my own apartment so I can get out of the college lifestyle.” Then there’s the new wardrobe for the new job…the list goes on and on.
Just like Shaq did before taking control of his finances, educate yourself (and listen to your financial advisors if you have them). There are more important things to worry about with your new job than a new car – such as signing up for the 401(k) program and focusing on student loan debt payoff, to start. Continue living like a college student as long as you can so more of your hard-earned money can go towards building a life for yourself (a life that doesn’t involve new debt and new things, but a solid financial foundation).
Focus on Growing Your Money – But Choose Investments Wisely
Athletes who lose money to investments don’t start off with the wrong idea. They likely know that their careers will phase out by the time they reach middle age and seek to find other income generating avenues that will last long after retirement. However, investing for the sake of it isn’t good enough – and chasing after something that sounds like it’s guaranteed to succeed is usually a mistake.
When you start investing, make sure you educate yourself and start slowly. Use a website like Betterment to get started slowly or talk to a financial advisor to get help understanding the pros and cons of each investment strategy. And, whatever you do, don’t chase after the big win. Good investments grow slowly and steadily – even Apple’s stock didn’t become what it is now overnight.
The final rule for investing is to not tie up all of your money in investments. Make sure you still have an accessible emergency fund and that you’re paying off any debt you may have. Putting all your eggs in one basket can spell financial ruin faster than you can say “the Dow dropped”.
Protect Your Financial Rights – No Matter What Life Brings
As you go through life, there are many financial ups and downs that you won’t be able to predict. The most important thing you can do to prepare for them is to know your rights. Again, it comes down to education. Before you get married, talk to your partner about money to make sure you’re on the same page. If you get divorced, understand the legal nuances of alimony and child support, what your ex-spouse owes you and vice versa. Find counsel you can trust and never sign a thing unless you know what you’re getting into (or out of).
It All Comes Down to Financial Education
You might be noticing a theme by now. Whether someone has encountered financial problems or is trying to avoid them, the solution all comes down to financial education. Athletes’ careers start at the most immature time in an adult’s life. It shouldn’t be that surprising that they can lose control of their money so fast. And, you know what, many of us do it too.
Buying homes too young, buying new cars, focusing more on building a material life instead of a financial foundation leads to years of regret for many of us. But if we take the time to educate ourselves and really understand the power of mindful decisions, then we can lead a life of fortune instead of regret. And the best part – that’s an education we can get for free and have full control over! So what’s stopping you?
Image 1 Credit: Leo Hidalgo
Image 2 Credit: Keith Allison
Image 3 Credit: Hugh Graham
Image 4 Credit: ewiemann
This post was published by Shannon, Community and Customer Support Manager for » ReadyForZero.
ReadyForZero is a company that helps people get out of debt on their own with a simple and free online tool that can automate and track your debt paydown.Download