Most of us would welcome a sudden windfall of money into our lives. With the most recent PowerBall Jackpot reaching $1.5 billion, people all over the country were planning on what they would do with that sort of money. Surprisingly, when people do have the odds in their favor and hit for these large sums, misfortune follows.
The majority of people who play the lottery are those who do not already possess massive wealth. The lottery is seen as (pun intended) a ticket to a better life. Another way that people can go from rags to riches, also with minuscule odds, is playing at a professional level in sports. People who go professional in sports come from a more-defined group of people: young men and women in their late teens and early 20s. After signing that first deal at the professional level, be it in the MLB, NBA, NFL, or other leagues, the athlete is made a millionaire.
To put it simply, leave it to the professionals. Whether you just won that big lottery jackpot or signed your first deal in the NBA, along with all that money, you have also acquired more responsibility. When you have the amount of money like a lottery winner or a professional athlete, your assets could be treated like those of a business. With services offered by Clarity Finances, one could avoid the tragic ending of so many athletes and lottery winners of squandering all of their loot.
Here are some of the Bookkeeping Services offered by Clarity Finances that could help:
General Ledger Maintenance: Record all transactions with proper classifications to help with tax filing, budgeting and other business decisions
Accounts Payable: Keep track of what you owe and to whom using QuickBooks
Bank Reconciliation: Mistakes can happen. With the bank reconciliation feature on QuickBooks, your financial integrity is secure
Potential for Downfall
Similar to many athletes, people who win the lottery do not typically come from wealthy backgrounds. When people have financial windfalls, many factors can lead to their downfall. Buying the wrong things that have depreciating value is at the top of the list: expensive cars, houses, clothing, and jewelry. Poor management of finances and neglecting to pay your bills can quickly lead to bankruptcy. Bad investments in businesses, real estate, failing to pay alimony for children, divorce settlements, and simply giving money away to friends and family can send a once-wealthy individual to financial ruin.
According to Sports Illustrated and Forbes, “80% of retired NFL players go broke in their first three years out of the League.” The aforementioned things like bad investments, purchasing too many items with depreciating value, and poor management contribute to a football player’s financial woes. The article by Forbes mentions how the NFLPA (NFL Player’s Association) has a pre-approved list of financial planners that they recommend to players and offer to educate the new players in how to protect their finances.
Some people go even further in their attempts to help players avoid financial ruin according to a story by CBS News. Len Middleton, a professor at the Ross School of Business Management at the University of Michigan offers a course tailored for future pro athletes. Middleton refers to this sudden financial windfall that athletes experience “The Lottery Effect.” In the course, he outlines what is left of a player’s contract after taxes, living expenses, and saving for the future.
Professional athletes are a unique group of people. They are often young men and women in their 20s and 30s who are widely popular, at the top of their games in a highly-competitive atmosphere, and millionaires. That said, even if a player is facing financial problems, he might be reluctant to discuss the problem due to pride and ego. The psychological implications can run deep for a player who is supporting her family, friends, and entourage. It can be hard for players to simply say “no” to their loved ones feeling a sense of obligation, not realizing the negative long-term effects of such open generosity.
A study by The Center for Retirement Research at Boston College found that the average retirement ages for American men and women are 64 and 62, respectively. These people are retiring from careers in which they have worked for decades. In the world of professional athletes, they are retiring in their late 20s and 30s. Yes, pro athletes have been training since their youth to make it to the big leagues, but only a select few will be paid to play.
According to the New York Times, the average career of a professional baseball player is 5.6 years, the average length of a professional basketball player is 6 years, and the average career length for an NFL player is 3.5 years. What is even more shocking is the likelihood of these players becoming bankrupt after their careers end. The average salary of an NBA player is $2.3 million, but there is a 60 percent chance of the players being bankrupt within three years of retirement, according to MarketWatch. Sports Illustrated estimates 80 percent of NFL players are broke within three years of their retirement.
If you win the lottery or play a short career in professional sports, you need to make this income last the rest of your life unless you have endorsement deals on the level of LeBron James, book deals like Derek Jeter (Jeter Publishing), or plan for a second career. It should be considered obligatory to plan for retirement by putting money away into a retirement account and making wise investments.