Why is Financial Planning Important for Athletes?
Young athletes who earn a substantial amount of money face several challenges. One is social pressure, which can lead athletes to make poor financial decisions. They may avoid the risk of disappointing family members by choosing not to invest their earnings in long-term financial security. Therefore, a financial planner professional athletes should be part of their overall financial strategy. This strategy should prioritize their financial security over the needs of their loved ones. In this article, we will discuss the most critical areas of financial planning for athletes.
The benefits of retirement planning for athletes are many. People have forty or more years to save for retirement in most professions. On the other hand, Athletes can expect to play well into their mid-30s or even early forties. This gives athletes the luxury of saving more during their peak earning years when they can take advantage of compounding returns and invest in retirement funds. Besides maximizing their retirement savings, athletes should also ensure that they have sufficient retirement income.
Many professional athletes have difficulty saving for retirement. They often rely on their paychecks for luxury expenses, but these expenses can eat away at their finances. Moreover, they are likely to experience injury during their peak seasons, so they must have a safety net for the rest of the year. A financial advisor can help them develop a financial plan and build a cash reserve. Athletes have unique challenges, and they need to seek professional advice to ensure that they have sufficient savings for retirement.
Income tax planning
Sports professionals with a significant net worth may want to consider strategies for protecting their wealth from creditors. A standard solution is to transfer part of the athlete’s wealth into a domestic or foreign trust. The athlete should discuss the tax implications of this option with a CPA or financial advisor. Transferring assets to a foreign trust can trigger Canadian deemed disposition tax or U.S. gift tax. Furthermore, transferring assets into a foreign trust can reduce the number of support available to satisfy legal claims.
Athletes earn large salaries during their careers, and it is essential to plan for their financial future. This means choosing a suitable domicile. Check if your team’s home state offers tax advantages. Or, consider moving to a state that has no income tax. Athletes with high-income status should also look into income tax planning. Income tax planning is a vital part of the athlete’s financial planning strategy.
Building up cash reserves
One of the biggest mistakes high-earning professional athletes make is not building up enough cash for their golden years. While the consumer price index rose 5.4% in July, average savings rates remain low, meaning that cash reserves are not as attractive as they used to be. However, despite the low-interest rates, some retirees still like accessing funds whenever they need them. Financial experts offer advice on how much cash to save for retirement.
Many professional athletes make the same mistakes that other people make, such as buying too many houses and things, not saving for the future, and falling behind on taxes. They also fall behind on divorce and have expensive child and alimony obligations. In addition, because most pro athletes are still young when they become rich, they spend frivolously. Therefore, building up cash reserves after retiring from professional sports is essential to help ensure that you have enough money to live comfortably when you get older.
Managing cash flow
Athletes make enormous amounts of money, but they are also the most likely group of people to go bankrupt. About 60% of NBA players go broke within two years of leaving the league. Fortunately, managing cash flow can be simple once you understand its different aspects. Before starting your cash flow plan, determine how much you’ll need to make every month. A typical season’s salary can range from $308,969 to more than $6.2 million if you’re a professional athlete. An athlete must understand the cash flow basics and develop a realistic budget for these reasons. Cash flow planning is also essential for athletes, as their earning period is much shorter than most other professions.
Other funding options
If you are an athletics organization, you may have many options for fundraising. You may be aware that sports organizations typically have budgets. While these budgets vary from region to region, it’s a good idea to consider what’s most important for your program. You should also make room for significant expenses, such as emergency funding for team travel, food and drink for athletes and staff, and hotels.