A budget aims to improve your financial health by optimizing your cashflows.
But unfortunately, professional athletes, who may be the most in need of optimized cashflows, may fail to see the value of this important life skill.
As a result, they may fall into bad spending habits and might build a lifestyle that is neither financially sustainable nor affordable in the long run.
Therefore, it is critical for everyone in general and pro athletes, in particular, to prioritize budgeting so they can have better control over their money.
However, with weak financial knowledge and little time to focus on building economic prowess, some athletes may not know where or how to start budgeting.
If you fall into this category, this article is for you.
We are discussing some top budgeting tips here that might help you get better at money management.
Important Budgeting Tips for Professional Athletes
Many people often wrongly assume that the only purpose of a budget is to organize your finances.
Organizing your spending and earnings is one of a budget’s purposes, but there is more to it.
With a robust budget and the discipline to stick to it, you may be better equipped to live a financially comfortable life for a longer time and avoid typical economic mistakes that often cost athletes more than they can imagine.
Here are some budgeting tips to potentially help you get started:
Prioritize Saving and Investing
A career in professional sports is short-lived and often vulnerable to unprecedented circumstances that can shrink it further.
Many sports professionals had to give up on their careers much sooner than they may have anticipated due to career-ending physical injuries.
Therefore, it is considered critical to prioritize saving for retirement and investing in areas that could sustain you financially once you get off the playing field.
So the first thing to do when building a budget is to set a savings goal and allocate money to meet those goals.
In this case, a pay-yourself-first budgeting approach might come in handy. Using this approach, you prioritize savings (or debt repayment) first and consider other expenses only once these are addressed.
It is essential to reconcile your budget and adjust the amount you direct to savings as your income changes.
Set Goals and Understand Your Cashflows
A budget is essentially a plan. And every plan is focused on meeting a goal. Therefore, before you can start budgeting, you need to identify your goals.
Ask yourself why you are building a budget.
Possibly so you could retire comfortably and lead a more financially secure life once off the field. Or so you could pay off your mortgage and own a property, or maybe diversify your investment portfolio.
Regardless of what your goal or goals, identify and focus on them while you make a budget.
Once you have your goals in focus, the next step would be to get a grip on your cashflows.
As a professional athlete, it can be easy to lose sight of what you are bringing in and spending.
Therefore, it is crucial to track your spending for successful budgeting.
Grab a pen and paper or open a digital spreadsheet and jot down your expenses.
Once you have your expenses displayed in front of you, you might be able to differentiate needs from wants and cut down on unnecessary expenses, allocating funds to better causes and potentially ending up with a budget that is more likely to deliver according to your expectations.
But that’s just one aspect of successful budgeting.
Another important aspect is to note down the “earnings” section correctly.
A solid budget builds on what you earn. And your budget may not be able to help you much if it builds on unrealistic income.
What you note down as your annual income may not actually be what you take home. There are a lot of hidden expenses, like taxes, fees, and whatnot, that can accumulate and reduce your take-home pay significantly.
So, consider working with a trusted financial professional to understand how much you actually make and build a budget accordingly.
Look for Tax Minimizing Strategies
Remember, a budget optimizes your cashflows and can help you put your money to better use.
Athletes are famous for earning substantial incomes, but with a hefty paycheck comes a massive tax bill.
While taxes are one of life’s realities and you cannot avoid them, what you might be able to do is try to look for ways that can possibly lower your tax bill.
Tax minimizing strategies might come in handy in this situation.
Tax minimizing strategies, or tax planning, involves working with qualified tax professionals to analyze and build a tailored tax plan that can help you stay tax-compliant and potentially reduce your tax burden.
The money you may save from taxes could go towards savings or retirement planning, helping you budget for these expenses more effectively.
Additionally, tax planning can also help you get a clear idea of how much you owe the government and the after-tax pay you get to keep.
Knowing how much you take home after taxes beforehand may help you budget your expenses according to what you actually earn rather than what you think you earn.
Diversify Your Income Streams
The purpose of your budget is to make sure your income is enough to account for all your expenses, savings and investments included.
But if the single income stream you build your budget on dries up, you might not be able to budget at all.
Therefore, building alternate income streams might be beneficial for sustaining your financial health and potentially help you practice successful budgeting.
Build A Team of Reliable Financial Professionals
An experienced and trusted team of financial professionals might help you get the most of what budgeting offers, smoothly handling your financial affairs while potentially lowering your risk of bankruptcy.
Working with a financial strategist, you might be able to assess your situation better and build tailored strategies to reach your financial goals.
They should be able to help you with effective tax minimizing and debt repayment strategies designed to ensure that your income goes where it can benefit you the most.
However, it is critical to choose your advisors carefully.
As an athlete, you may come across many well-dressed, eloquently speaking con-men who may only be after your wealth.
Since the public knows you make a lot of money, and athletes are often known to have little to no financial knowledge, they tend to become easy targets for deceiving “advisors” and “investors”.
Therefore, vet the person you decide to trust with your money thoroughly to make sure they aren’t channeling it away in bad decisions or illegitimate expenses.
Budget is usually looked at as a financial approach for people with low earnings. However, it is a critical life skill that is equally important for everyone, regardless of how much they earn.
Being a professional athlete, you may have a lot to gain from effective budgeting. Therefore, consider building one today.
To start on the right budgeting track, set your financial goals beforehand, understand your cashflows, look for tax minimizing strategies, and diversify your income streams.
And if all of that is a bit challenging for you to manage on your own, get professional help.
At Dayton and Sydney, we help professional athletes build tailored financial plans that aim to help them develop financial health and sustainability in the long run. Schedule a free consultation with one of our trusted financial professionals to discuss your ideas and options.
Equitable Advisors, its affiliates and financial professionals do not provide tax, legal or management advice or services.