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Budgeting 101

Why 60% Of NBA Players Go Broke Within 5 Years Of Retiring & Why It Can Easily Happen To You and I

Some of us are making the same financial mistakes as broke millionaire athletes.

 

The average NBA player will make at least a few million dollars in his career. On the outset, it seems like these athletes will be living in a financially secured life. Who wouldn’t? Having accumulated more money than what most of us would ever make in our entire working life, a happy retirement after their career appears set in place.

However, a Sports Illustrated article in 2009 shared that about 60% of NBA players go broke 5 years after their retirement. Though the study was done quite a number of years ago, we believe it is still relevant today. More importantly, what financial lessons can we learn from these athletes? Can we avoid the same pitfalls?

What Would You Do If You Won $3 Million Dollars Today?

Let’s imagine a hypothetical scenario. If you bought the lottery today (e.g. Toto) and won S$3 million, what would you do with the money?

For most people, the first few things that come to mind would be to, buy a nice home for themselves, their parents, get a new car, save some for their children’s education and perhaps invest the rest of the money. There will be plenty of things in our checklist when we think about what we can do with our newfound money.

But do you know what’s the best thing you could do for yourself?

Nothing.

Yes, we’ll advocate for you to walk right back into the office on Monday, and continue doing whatever you have been working on.

Read Also: A Fresh Graduate Guide To Financial Freedom – Fixed Expenses

Your Lifestyle Is What Matters

Here is the myth that many people subscribe to. They believe that they do not have enough money in life because they don’t earn enough money. What they do not realise however is that it is their lifestyle that matters more.

Professional athletes are a great case study to look into. It is common to see young athletes increasing their spending upon getting their first professional contract. For top players, their first contract can typically be worth a few million dollars. For example, Kyle Anderson, the 30th pick (which is the last first round pick with a guaranteed 3-year NBA contract) for the San Antonio Spurs in 2014 has a US$3.4 million deal over the span of 3 years.

US$3.4 million is a lot of money. After the tax deduction, this becomes about US$2 million. It is definitely good money, yet at the same time we wonder, would this be enough? What if 22-year old Kyle Anderson doesn’t get his contract renewed after 3 years?

Advising Kyle Anderson, Or Ourselves?

At this point, some of us would try to advise a young athlete like Kyle Anderson not to indulge in luxurious lifestyle. We might remind him that an athlete career is short, and that he needs to think of setting aside sufficient money for tomorrow, rather than to spend it all today.

Strangely enough, we met many young people in Singapore who could do with the exact same advice. Heck, we have met older people who could adopt the same advice that we just gave Kyle Anderson. Don’t spend all your money today, and save some for tomorrow instead.

Many of us would advise Kyle Anderson to try grow his money through prudent investments. Yet at the same time, how many of us older folks are actually doing that ourselves?

We will advise Kyle Anderson to keep his lifestyle simple. We will remind him not to be pressured to spend more by his peers, who might have much more money having already played in the NBA for a longer period. Yet, many of us are constantly being pressured to spend more just so that we can keep up with external appearance with our friends.

The point we are trying to make here is that a lot of the financial pitfalls that we advise and expect young athletes to avoid are the very same pitfalls that we average people are making all the time.

Get Educated Ourselves

One of the biggest obstacles towards living a more financially prudent lifestyle is the lack of personal financial education. It’s always easy to point the finger at people who have lost huge amount of money like the professional athletes or lottery winners and assume that they lost it due to a lack of discipline and bad spending habits.

However, most of us are not well equipped to manage large amount of money. We might turn to financial advisors, who may or may not have our best interests in mind. We might listen to advice from our family or friends, who may not be able to offer the best advice, in spite of their best intentions.

If we are not able to manage the money we have today, it would be unrealistic for us to expect that we could manage more money in the future, even if we do somehow get them.

Start getting interested in your own financial matters today. It’s important and should not be ignored.

Read Also: How Saving 10% More Of Our Annual Income Can Change Our Retirement Completely

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