5 Common Money Mistakes That Broke Athletes Make

culled from:bankingsense.com

Despite how many fans a pro athlete may have, how many home runs or touchdowns they’ve scored, or how much money they make every year, so many seem to go broke. Why do these people, who have so much at one point, end up struggling financially? The truth is that the athletes who burn through their money – sometimes even before they retire – all make the same kinds of mistakes. Aside from expensive divorces and more expensive drug habits, these are five common reasons why athletes go broke after having so much.

1. They Make Too Much Too Soon

A lot of athletes go pro early in their twenties – a time when most people are just learning about financial responsibility and independence. Athletes make the same mistakes most 20-somethings do, like making poor investments and getting charged for overdrafts and other fees. However, athletes are making these mistakes on a much larger scale because they have more money than the typical 20-something and therefore more to lose.

2. They Don’t Start a Savings Account

With retirement far away, it’s hard to convince anyone in their early twenties to start saving money. For athletes, retirement is much closer, as most only have six to eight years to earn money during the peak of their career. Managed the right way, athletes can live off the interest of their investments for years after retirement. Unfortunately, most young athletes don’t have the maturity to save and invest their earnings from the beginning. Others try to invest, but choose the wrong things to invest in, like risky startup businesses, or they put all of their money into one investment, like real estate.

3. They Spend Way Too Much on Frivolous Items

Mike Tyson earned $400 million throughout his career, yet he had to declare bankruptcy in 2003. How is that possible? Tyson, like many athletes, blew his money on frivolous items and it left him broke. He bought mansions, jewelry, cars, exotic animals, and he also paid for his entourage. When such big heaps of money are constantly rolling in, a lot of athletes can’t picture a time when it won’t be there.

4. They Don’t Plan for Taxes

Evander Holyfield made over $250 million throughout his career but he lost his mansion partly due to IRS debt ($200,000, to be exact). Earning so much money every year means that a large chunk of it has to go to pay taxes every April. Unfortunately, a lot of athletes don’t plan for this. Through the years, the tax debt continues to pile up. Every athlete should hire a tax professional to handle their income reporting and deductions. An accountant can also help athletes budget their money and set enough aside to pay their taxes in full every year.

5. They Don’t Plan for Life After Professional Sports

Some athletes expect to have a long career, like Ray Lewis. Longevity like Lewis’ is the exception, though, not the norm – on average, most athletes end their career at 33 years old. Other athletes assume that they’ll easily pick up a job in their niche – when they’re no longer on the football field, they plan to be a sports reporter or maybe a coach. This type of transition isn’t guaranteed, though. For players who don’t take advantage of the opportunities they have while they’re at the top of their career, the job outlook afterward looks grim. Athletes should also plan for the unexpected – there needs to be a backup plan in case they don’t have what it takes to make it in marketing, broadcasting, or coaching.