Getting ahead financially is pretty simple. Just make sure your outgo is less than your income and voila, your net worth grows.
Do that consistently and you’ll build wealth.
Do that religiously and the following words may someday come out of your mouth:
“I don’t have that pressure, you know what I mean. My wife has no worries. My child has no worries.”
That quote is not from an average Joe that’s built wealth over the years. No, that quote is from a professional football player… and someone who doesn’t want to fumble the financial ball later in his life.
Ryan Broyles signed a $3.6 million contract with the Detroit Lions. Nearly half of that amount is guaranteed. No matter what happens, he has big money coming his way.
But big money is no guarantee of financial independence. History is littered with examples of this:
Money shouldn’t have been a problem for Mike Tyson. After all, according to the New York Times, he had earned more than $400 million in his boxing career. However, he had spent almost all of it, frittering it away on extravagances like mansions, luxury cars and pet tigers. When he filed for bankruptcy in 2003, he claimed debts of $27 million.
Kenny Anderson earned an estimated $60 million during his NBA career after playing for nine different teams. He owned eight cars and an estate in Beverly Hills, and gave himself a $10,000-a-month allowance that he referred to as “hanging out money”. At the time of his bankruptcy filing, he had $41,000 in monthly expenses to pay.
Basketball player Latrell Sprewell earned almost $100 million over his career but financial independence was blind to that amount as well. By 2007, Sprewell’s yacht, “Milwaukee’s Best,” had been repossessed by federal marshals after missed payments and insurance worth over $1 million. In 2008, he defaulted on the mortgage on his Milwaukee home, sending it into foreclosure. His Westchester mansion went into foreclosure two years later.
Quarterback Mark Brunell played for the New York Jets, the Green Bay Packers and the Jacksonville Jaguars. During his career, he is estimated to have earned over $50 million. However, on June 25, 2010, he filed for bankruptcy, listing over $5 million in assets and nearly $25 million in liabilities.
So, what’s happening here? Why didn’t these large incomes automatically provide for financial independence for these athletes?
It’s because financial independence is income blind.
That means you can make a seven figure income and still be broke. That means you can make an eight figure income and still be broke. That means that you can make a nine figure income and yes, still be flat broke.
And it appears that Mr. Broyles knows this fact all too well. This business-minded athlete is sticking with his “comfortable” lifestyle. He and his wife are living on $60,000 per year – the same income they’ve lived on throughout his career before he made it big. His big post-draft buy was a Tempur-Pedic bed. He and his wife both drive Mazdas and he still has an SUV that he drove in college.
He says the $60,000 figure came after meeting with a financial adviser in 2012. They worked together to figure out how much money he needed per month to live comfortably, then invested the rest.
I’m going to repeat that…
They worked together to figure out how much money he needed per month to live comfortably, then invested the rest.
The rest of his money is going toward investments for his family’s retirement, the life that will come after football. Yes, he’s already thinking about what his life will be like in retirement. And for good reason.
Sports Illustrated recently estimated that 80% of retired NFL players go broke in their first three years out of the League. That’s a sobering statistic.
Almost as sobering as these statistics from the latest Employee Benefit Research Institute 2015 Retirement Confidence Survey. Of those that were asked if they felt confident that they have enough money saved up for retirement:
- 22% said they were very confident
- 36% said they are somewhat confident
- 24% said they are not confident at all
Last year, nearly two-thirds (63%) of retirees depended on Social Security as a major source of their income. This, with the average monthly Social Security benefit of only $1,328! Put another way, a government-provided monthly check of $1,328 is the major source of income for most retirees!
The ultimate key to avoiding this type of life in your retirement is to do what Mr. Boyles did, not get ahead of yourself. Learn to live comfortably on a portion of your income and then save and invest your raises. Got a raise at work or received a big gain from selling your house in a hot market? Great. Follow Broyles’ lead. Don’t spend it. Save it and keep your current lifestyle.
Don’t rush out to buy the bigger house. Keep your current lifestyle.
Don’t rush out to buy a more expensive car. Keep your current lifestyle.
Don’t rush out to bring your expenses in line with your income and snatch defeat from the jaws of victory. Keep your current lifestyle.
Now, what if you’ve already gotten ahead of yourself? What if you’ve allowed your expenses to match, or worse, exceed your income? I have one word for you – downgrade.
One major step you can take in getting away from paycheck-to-paycheck living is to downgrade. Do you really need that gas-guzzling car when an efficient one would do? Do you really need that big of a house? Consider moving to a smaller or more efficient version of these things. It’ll lower your monthly bills, eliminate debt, and quite likely put cash in your pocket. Cash that you can put to good use, like investing, that will grow your net worth.
This is a major step for many people and it’s often one that inconveniently gets inside their comfort zone. “I’ll NEVER do that,” you’ll think to yourself. Instead of just automatically rejecting the idea, think about it more seriously for a little bit. Think of how much easier life would be without that huge car payment or with a smaller house payment. You might find you don’t need the things you think you need.
You might find that you have less stress about money.
You might find that you are happier.
And instead of becoming another person dependent upon family, friends or the government in retirement, you might find yourself uttering words similar to those above:
“My wife has no worries. My child has no worries.”
Be free. Nothing else is worth it.
Want more information about securing a worry-free retirement? Check-out these posts from the blog archive: