What the Bankruptcy of NBA Superstars can Teach us All
It is hard to imagine that NBA players should worry about bankruptcy after this summer. The signing of Timofey Mozgov started a trend of stunning contracts for not-so-great NBA players. The Lakers agreed to pay $64 million dollars to someone who scored a total of 7 points in this year’s finals series. That’s nearly $10 million per point!
While NBA players got hefty paychecks this summer, they must learn from their predecessor’s financial mistakes. According to Sports Illustrated, approximately 60% of NBA players go bankrupt after 5 years of their retirement. Whether you were lucky enough to be an NBA player this summer or just an average American, here are 4 tips you can follow to avoid bankruptcy.
Gain Financial Education
There is a lack of understanding of personal finances amongst NBA players and Americans. According to FINRA, only 39% of Americans are able to answer at least 4/5 basic personal finance questions correctly. Financial illiteracy can result in disastrous consequences in the future for anyone.
“Now you have to educate yourself on how to maintain that [lifestyle], and a lot of people don’t do that.” – Shaquille O’Neal, ex-NBA Superstar
Whether it is online databases or personal help, you must seek financial help to ensure you have the necessary tools to make sound decisions. NBA players have plenty of resources when entering the league. These include financial education programs like the ‘Rookie Transition Program.’ You too have many resources readily available to gain financial literacy. These include: Government Resources, Financial Blogs and Newsletters, and Personal Finance podcasts. Make the most out of them!
Plan for the Future
For an NBA player it is especially important to have a plan for the future. The average career life for a professional athlete is considerably shorter than any other profession (3-5 years). Regardless of how much money you make in 5 years, it can always run out.
“After you’ve beaten up your body, instead of retiring in some semblance of peace, you’re pinching pennies.” – Adonal Foyle, ex-NBA player
The NBA has taken matters into their own hands to ensure NBA players have some sort of plan for the future. Under the most recent collective bargaining agreement, 1% of the players’ income is directly stashed away in an annuity. Additionally, 5-10% of their income is automatically set aside for retirement savings.
To live a comfortable future, begin saving money each month. Being prepared in case of an emergency and starting to build up your retirement plan will help you avoid bankruptcy in the future.
Manage your Expenses
The income of an NBA player changes overnight. Typically these changes are drastic, going from a college basketball player to a millionaire in hours. The most important thing for rising NBA players is to have a clear financial plan and adjust their expenses accordingly. NBA players and Americans alike fall in the trap of overspending.
“I created a very expensive lifestyle. That’s how you lose your wealth real bad at the beginning.” – Antoine Walker, ex-NBA player who lost all $108 million in career earnings
Having a plan to never spend beyond your means is an essential component for anyone’s personal financial success, whether you are an NBA superstar or not.
Avoid Too Good to be True Investments
Athletes are often baited into making ‘high return’ investments. More often than not, these quick money schemes end up not working out. You always have to remember a basic financial rule: return is directly proportional to risk. Don’t fall victim to high-risk investments or get-rich-quick schemes.
This lesson applies not just to pro athletes, but to anyone out there who is great at what they do. Use your talents to make money, but don’t venture too far outside your area of expertise with reckless confidence. – Drew Housman, Simple Dollar
Have a plan for steady returns on your savings. Do not seek high returns in a short lifespan – seek out long term financial goals that will make your money grow at a steady pace (mutual funds, index funds, online savings account).
No one is immune to the downfalls of money mismanagement. Even NBA superstars have filed for bankruptcy. Alongside the highest paid NBA players this summer, you too must follow key steps to ensure your financial security.