Congratulations on signing your first professional contract! This is a huge moment for you – a moment you’ve probably been working towards for most of your life.
This may be the most money you’ve ever had at once. It probably feels exciting and a little overwhelming – especially when your friends and family are giving you advice on how to spend it. Navigating the world of pro athlete contracts with them at your side can be trickier than you expected.
Your family and friends have supported you to reach your athletic goals. But for many pro athletes, family and friends have also been part of their financial downfall. NFL player Trent Richardson signed a $20 million contract with the Browns in 2012. But between paying for over forty friends to attend his games and buying family members new cars and houses, he found himself nearly bankrupt.
There are easy ways to avoid Trent Richardson’s fate and make the most of your financial windfall. Here are 5 things to keep in mind when navigating your new contract:
- It’s less than it appears. Richardson’s eye-popping $20 million contract became less than $15 million after taxes. That still sounds like a lot of money – and it is – but it’s important to hire financial professionals like a Certified Public Accountant (CPA) that can help you pay the right amount in taxes. It’s smart to know exactly how much you have to spend before you start spending it.
- Allocate to automatic deposits. The easiest way to save money? Don’t let yourself see it. When you get your signing bonus and your salary starts coming in, automatically transfer a percentage of it to a savings or investment account. A qualified Financial Advisor can help you determine how much you should allocate and how to invest.
- Set expectations with family and friends. When Wade Davis became a free agent in the NFL, he made more money than anyone in his family had ever seen. So at family outings, cousins would ordered lobster and caviar – then put it on his tab. It’s smart to set gentle expectations for family and friends right off the bat. Explain that you need to save for retirement and pay basic expenses before treating anyone to fancy meals.
- Start thinking about retirement now. Retirement probably seems far away – after all, you just signed your contract! But athlete retirement is often much longer than average; in fact, most American pro athletes will retire before they turn thirty. It’s important to start thinking about – and saving for – your long retirement period right away, especially if you think family members will be reliant on you in the future.
- Let your Financial Advisor be your planner – and your “no” guy. It’s hard to know the right thing to do with your money. That’s why it’s smart to work with a trusted Financial Advisor. Not only can they help you invest and grow your money for long-term financial comfort, but they can advise you when friends and family ask for cars or vacations. It’s much easier to say “my Financial Advisor told me ‘no’” than to say it yourself.
At Arbor Financial, we’re not just Financial Advisors – we’re also former pro athletes. That’s why we’re passionate about working with other athletes: We’ve been there, and we love helping young athletes navigate the world of contracts and find long-term financial success. Reach out to us for an initial consultation here.