Professional athletes face unique challenges when it comes to managing their finances effectively. Their sporting careers start at a young age, when financial experience is often limited. It’s also a career that’s much shorter than traditional careers – on average seven to eight years for premiership rugby and football. This can lead to athletes wondering what they should be doing with their money and can result in potentially making impulsive/short-term decisions without understanding the long-term impact to them, and their finances.
In this article, senior financial planning expert and ex-professional rugby player, Dave Lewis shares his tips on how to invest money during your sporting career. He looks at the importance of a long-term plan, focusing on controllable factors, and how to manage unexpected disruptions, such as an injury.
1. Understand the basics
Before investing it’s important to understand the basics of good money management. Some of the foundations are to spend less than you earn, save regularly, and automatically. These principles will stand you in good stead throughout your life, not just while playing.
2. Hold enough cash
Before investing, you should have a pot of cash for emergencies. Being an athlete, assessing the amount of cash you’ll need is an art, and will be different for everyone, depending on:
- Your current financial situation
- How much you spend each month
- Your career stage (start, middle, or end)
- Your contract and position within the wider market.
It needs to be an amount that can, for example, fund repair or maintenance costs for your car and other home-related expenses, as well as support your lifestyle for a period should your contract not get renewed, or injury strikes.
Ultimately, the cash you hold should be an amount that gives you peace of mind and helps you sleep at night.
The level of cash will be entirely dependent on the situation. A 30-year-old athlete with a year left on their contract, and no other qualifications or business interests, might want to hold more cash. While a 26-year-old sports professional in their prime, with a degree and other work experience, with four years to run on their contract, may feel comfortable holding less.
3. Pay down debt
There are two broad categories of debt. ‘Bad debt’ comes in the form of credit cards, high interest personal loans, or overdrafts. Mortgages, student loans would be considered ‘good debt’.
The important thing here is that you are avoiding bad debt, but if you do have it and the interest you are paying on these loans is high, then it makes sense to repay this first, before thinking about investing.
4. Consider your investment goals
As a beginner to investing, knowing what you want your money to do for you is important. Do you want to buy a house? Build up a pot for your children’s education? Ensure you have a future income? It’s important to start by asking “what am I doing this for?”, before you decide what action to take. For example, if you want to use the money within the next five years, it may not be sensible to invest because of the possible impact of short-term stock market fluctuations on your goal.
5. Consider your comfort levels
Once you have decided that investing is right for your financial plan, you need to understand what levels of investment risk you feel willing to accept, and possibly need to take! Remember this does not have to be the same strategy for all your investments. Every investing journey has its ups and downs over short-term periods. The best strategy when it comes to how to invest your money is the one you can stick with for a long time. Market fluctuations are normal and having a long-term timeframe (10+ years) will help you tune out of the noise when investments dip over short periods.
6. Don’t hold all your eggs in one basket
This couldn’t be more important when it comes to investing. You can manage and lower your investment risk if your money is invested across many different companies, industry sectors, and (importantly) geographical locations. This is called diversification.
7. Consider access
We see too many athletes who are asset rich and cash poor when they stop playing. They might have a lot of equity (the difference between what their home is worth, and the mortgage) within their home, or big savings in a pension, but do not have the income or accessible savings to support the cost of their lifestyle. When your sporting career comes to an end, you need to be able to access your money so that you can continue to maintain your desired lifestyle. The goal is to strike the right balance between what is optimal from a financial point of view, versus what’s optimal for your life.
8. Be your future friend
The earlier you start to plan for your future, the more likely you are to have a smoother transition and successful next chapter when the time comes. Because time is short as a professional athlete, your behaviour and actions will have a far greater impact on the success of your financial planning than any investment. This should be seen as a positive, as you have the control!
9. Post-investment analysis
It’s important to review your financial planning regularly throughout your sporting career. Life will change and no plan is perfect. However, regularly reviewing your financial plan means you can adapt to any changes in your life and evolve your financial planning and investment strategy to make sure you stay on track.
10. Ask an expert
If you are in any doubt about your financial planning, or investment strategies, then ask for a second opinion from an experienced financial planner who understands your unique situation and can help you gain that clarity you need. They will talk you through the basics and help you take the steps needed for a secure financial future.
Traditional financial planning helps people prepare for a dignified retirement from their mid-50’s or 60’s. This is not when professional athletes experience their first retirement, so it presents some challenges for those not experienced with this type of situation. Equally, it is hard for a pro athlete to get to grips with their own financial planning and investment management at such a young age, while also competing at an elite level. With expert planning, advice about the best ways to invest, and a disciplined focus, sportspeople can achieve long-term financial success.
Our financial coaching, planning, and advice is hugely beneficial for pro athlete clients to enable them to ensure they are financially secure, whatever the future circumstances may be. If you want help with understanding your financial situation, instilling great financial habits, and are an action-taker, then Paradigm Norton Sports can help.
If you’d like to know more, visit Paradigm Norton Sports to book a meeting with Dave Lewis.
Investing places your capital at risk and investments may fall or rise in value. You should seek competent advice before taking any action.