Recently the famous rapper 50 Cent, whose birth name is Curtis Jackson III, filed for bankruptcy. After a few years of being shot 9 times at point blank range, he became the number one rapper in the world. He has sold over 21 million copies of his albums and on top of that, became part of owner of Vitamin Water.
According to one estimate, he made $260 million dollars and Forbes listed his net worth at $155 million this past May. Details of his financial standing in his bankruptcy papers show that he has $25 million in assets but with $33 million in liabilities. How could someone who made so much come to this point? He isn’t the only one however.
Professional athletes make millions of dollars a year, but every year many of them unfortunately run into major financial problems. In the NFL, the average salary is $1.9 million, but 78 percent of former players are in bankruptcy within five years of retirement! In the NBA, that figure is 60 percent, even though the average salary is $5.5 million.
Despite the high pay, money mistakes made by athletes are very common. The biggest difference is that athletes make most of their money at a young age and before they learn basic financial skills. They don’t develop the SMART Mindset to keep their money. Whether you make $50,000 or $5 million, here are some money lessons we can learn from athletes and how we can avoid them.
- Overspending. 5- Cent’s bankruptcy filing showed that 50 Cent spends $108,000 a month on expenses, including $3,000 on clothes, $5,745 on his Bentley car lease, and $5,000 on gardening. His 18-bedroom mansion with 37 bathrooms and 5 whirlpool baths cost him $72,000 a month. Mike Tyson, the former heavyweight boxing champion, reportedly made $400 million in career earnings but declared bankruptcy in 2003. Tyson liked to live large and spent millions on mansions, cars, jewelry, his entourage – and he even paid $140,000 for two Bengal tigers that cost more $125,000 a year just to maintain! Former NFL quarterback Vince Young blew through $26 million in just six years. He would buy 120 tickets on a single Southwest Airlines flight just so he could fly alone. Even though we may not be able to spend like them, many people spend more than they bring in. How much money you make doesn’t matter as much as how much you can keep. To avoid overspending, set up a budget and investment plan. Use automatic transfers to ensure regular investment and savings.
- Legal Issues. 50 Cent and his team have stated part of the reason for declaring bankruptcy is due to the $5 million dollar judgment against him for a sex tape he released. He was also ordered to pay $18 million in damages to a headphone company that accused him of ripping off their design. Lawsuits are very common today, especially for the wealthy. While many are legitimate, some are looking to make a quick buck. Protecting yourself with certain types of insurance, separating your personal and business assets, and being above reproach are some strategies to avoid the one potential lawsuit that can clean you out. It didn’t help that his lavish lifestyle made him a target. Even with petty disputes, the wealthy have more to lose, so it is better to take the high road if possible. According to the rapper’s lawyers, Chapter 11 bankruptcy gives him more time to restructure his debts and protect his businesses.
- Lack of tax planning. Evander Holyfield, another former heavyweight boxing champion, earned more than $250 million in his career. However, he recently lost his 54,000-square-foot mansion to foreclosure partly because of his $200,000 IRS debt. Lawrence Taylor, a famous football linebacker, failed to report $48,000 in income and was sentenced to three months of house arrest. In 2012, the IRS sent out approximately 708,000 notices of liens on taxpayers’ properties. It is important to claim the correct amount of deductions and report all your income. Work with a tax professional, if needed.
- Invest Wisely. According to the financial proceedings, 50 Cent’s assets include $9 million for three homes and 7 cars worth $500,000. Although his income from royalties and interest are $185,000 a month, some of his investments haven’t panned out. He lost $10 million over the course of 2013 and 2014. Some of his investments have been in adult film production and a clothing company have been difficult to value. According to some experts, they may not be worth much despite the millions invested. Regardless of your income and assets, it is important to choose SMART diversified investments. The foundation of your savings should be in liquid investments.
- Lack of diversification. Putting all of your eggs in one basket is very risky. Miami Heat basketball star Antoine Walker declared bankruptcy after losing a huge chunk of his $110 million career earnings in commercial real estate that went bad in the 2008 financial crisis. Famous baseball pitcher Curt Schilling said he lost all $50 million he saved on a failed video game venture. It’s important to spread your investments over different types of assets in order minimize your risk.
- Overestimating your career. The average professional athlete’s career is over by age 33, with the average career span in the NFL at three-and-a half years, the NBA less than five years, MLB less than six years and the NHL five-and-a-half years. NFL wide receiver Terrell Owens sustained a knee injury in 2010 and told ESPN he would be back in a few months to play. Unfortunately, he wasn’t able to and had two of his Dallas condos go through foreclosure. The average American worker today changes jobs every three to four years. It is important to start saving early and consistently. Injuries, health issues and a bad economy can hurt job prospects.
Athletes aren’t the only ones that have money issues. Studies show that lottery winners who come into a significant sum of money also are bankrupt within a few years! Click here to read more about some of their woes!