When Joshua LeBlanc got his signing bonus from the Los Angeles Angels in 2004, the first thing he did was drive to the mall. Over the next few hours, he spent so much on new shoes and clothes that, for the first time, he hit his bank’s daily debit card limit. “That could have been an education. But the next day, I was back at the mall,” he remembers. “I felt like I had to dress a certain way now. It was easy to fall into those traps.”
He learned his lesson, though, and now LeBlanc, who became a financial advisor after leaving baseball in 2008, helps pro ballers (and non-athletes, too) avoid the same pitfalls and focus instead on strategies to turn their earnings into nest eggs.
Pro baller paychecks may be bigger than yours, but the same principles apply whether you’re earning $50,000 or $5 million a year. If you want to set yourself on the path to financial success—and even early retirement—take a cue from the lessons the savviest athletes have learned.
1. Have a game plan going in.
“In baseball, if you go in without a game plan, your success rate isn’t high,” says LeBlanc. “It’s just as important to have a plan in place for your money.” Jonathan Miller, a C.P.A. and president of the Sports Financial Advisors Associationwho works with several pro athletes, says he tries to sit down with clients early on. “We talk about how much money they want to have in hand when they retire and then work backwards.” A good rule of thumb for anyone: Aim to put at least 10 percent of each paycheck toward your post-work life, starting with contributions to a 401(k), IRA or other tax-advantaged account, and make sure to take advantage of employer matches. (Want to retire early? Sock away more.)
2. Save enough to cover pay gaps (or unexpected bills).
Many athletes only get paid for part of the year, Miller says, “So you have to be disciplined and set aside money for when you don’t get a paycheck.” The same approach can apply to those with contract jobs (nearly 54 million people in 2015) or shaky full-time positions. And regardless of your situation, it’s smart to work toward having three to six months worth of expenses saved to cover unexpected bills or layoffs.
3. Pay yourself first—and don’t sweat the small stuff.
Once you’ve figured out how much you need to save and invest from each check, set up automatic transfers to your saving and investment accounts from your checking account to coincide with your paychecks. Automating helps you avoid overspending and takes the stress off tracking every cent. It’s not about the “nitty gritty of small purchases,” says Miller. “It’s really about how much to save from each paycheck so you hit your goal at the end.”
4. It’s okay to splurge, sometimes.
A newly signed athlete may buy a new car. A newly hired lawyer may buy an expensive suit. “Until you build up confidence, that may be something that lets you feel comfortable walking into the courtroom,” says Miller. “The question is: How do you do that without blowing your budget?” Sometimes the answer is to spend a little more from the first couple paychecks, but then set aside more savings from the checks that follow. The key is making sure it doesn’t become a habit, says LeBlanc. “Overextend yourself and you’ll always be chasing the buck. You’ll always be trying to catch up.”
5. Leverage your skills (and brand) to create new sources of income.
Even well-paid athletes pick up side hustles. A.J. Francis signed a one-year deal with the Tampa Bay Buccaneers worth $600,000, but told reporters he’s been moonlighting as an Uber driver—earning a little extra income and interviewing passengers in the hopes of using that experience, plus his pro football credentials, to launch a second career in broadcasting. And, of course, endorsements can provide steady income for athletes long after they leave the field or court: LeBron James famously signed a lifetime deal with Nike NKE +0.19% said to be worth as much as $1 billion. You likely won’t find a gig quite that lucrative, but it’s easier than ever to leverage your skills, build your brand and boost your income, thanks to social media and online marketplaces like Fiverr, Gigbucks and Etsy.
6. Avoid freeloaders and enroll friends in your goals.
“When you start making money, you can get used to always picking up the check,” says Kansas City Chiefs Hall-of-Famer Nick Lowery, who played in the NFL for 18 years and and now consults for Viktre, a private social network for athletes. “It’s easy to get caught up in the culture of the entourage.” The same can hold true if you’re earning more than your friends. It’s not just about saying “no” to requests to cover checks when you start making money, though. It’s finding a “no” friend who has your back “and will talk you out of doing something dumb with your money, too,” says Miller.
7. Don’t lose focus.
“That was something I learned when I was playing,” says LeBlanc. “You need to keep your focus on the field.” The same holds true with your financial goals. Lose track of your goals, and you can be easily distracted and fall off track. LeBlanc says he constantly reminds clients of the consequences if they do overspend now—whether it means postponing retirement or buying that home. “You have to ask yourself: What’s more important to me?” he says. His advice: Stick to the plan and keep your eyes on the prize.
July 26, 2016