For many professional athletes, it’s an almost overnight leap from no income and relative anonymity to fame and nine-figure fortunes. That’s something at least a few of the basketball players hitting the backboard during this year’s March Madness tournament may be experiencing soon.
Of course, that won’t be the case for most other college grads. But many millennials will see a big jump in their annual incomes in their twenties. And many of the same financial lessons apply, regardless of whether you’re making thousands or millions.
The key is to have a sense of awareness of what you have, said Erika Safran, a certified financial planner in New York City. “Pro athletes suddenly have a lot of money they didn’t have before and they aren’t trained to think about money, so they don’t visualize allowing for a healthier financial future.”
The same applies for many millennials when they graduate college and start pulling in a paycheck. “Having a sense of awareness of what you have and don’t have and what you are spending is huge,” Safran said.
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She recommends making a budget of your monthly expenses that includes essentials and a set amount you plan to save, and sticking to it. Apps like BudgetPulse, Mint and Wally can help you track your spending and progress toward your savings goals.
Once you start making more money, it is easy to fall into the trap of spending more too. That’s true of professional athletes too, many of whom have demonstrated the potential pitfalls of not planning ahead.
It’s been widely reported that as many as 60 percent of NBA players file for bankruptcy five years after retirement. The National Basketball Players Association disputes that percentage—executive director Michele Roberts asserts that “there is no evidence or underlying factual basis to support it”—but the group doesn’t offer any of its own statistics on player bankruptcies. And the NBA has acknowledged concerns about players’ financial habits and implemented a rookie financial literacy program.
“I see it (overspending) among young people all of the time,” said Safran, regardless of whether they’re making five figures or nine.
The antidote? Put some of your money to work for you immediately, said David Mendels, director of planning at Creative Financial Concepts in New York City. Set some aside as an emergency fund (three to six months’ worth of expenses is a good target) and make sure you’re contributing to a retirement account as soon as you’re eligible. That way, some of your money can start gaining interest right away, and you can make sure you’ll have enough money down the road.
“What happens if your car breaks down or you lose your job?” asked Mendels. “Put some money aside right away. It’s job is to be there for that sudden expense.”
When it comes to investing, you can also take a cue from basketball. Think of your portfolio as a basketball team, with a lot of different players. Don’t just rely on one star stock. Diversify with a range of investments that include stocks and bonds.
Advisors recommend consistently investing in one or more diversified funds. ETFs and index funds are good places to start as they carry low fees.
Your exact investment mix will depend on your time frame and your individual goals, but the more diversified you are, the better the chances you’ll end up with a bank account worthy of a baller.