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Huntington Beach, California. Professional athletes face a challenging task early in their careers – learning how to handle large sums of money as they propel them toward stardom, often at a young age.
All-star basketball player and Major League baseball player, Dexter Fowler, Isaiah Thomas sat down with CNBC at the Future Proof Wealth Festival to discuss the financial lessons they’ve learned during their careers. Financial advisor Joe McClain, who works with Fowler and Thomas, also shared tips from working with wealthy athletes such as NBA star Clay Thompson and professional golfer Sergio Garcia.
Here are six of their best financial tips.
1. Save more than you spend
Isaiah Thomas during the NBA All-Star Game in 2016.
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“Once I had the money, once I started my career, learning how to save was the most important thing I learned,” said Thomas, 33, a base keeper who is now a free agent. He has played for many teams over a decade and was a two-time NBA All-Star during his stint with the Boston Celtics from 2014 to 2017.
When his first paycheck rolled in, Thomas and MacLean set the parameters: 70% of every net dollar was allocated to a savings pool. This made savings automatic, said MacLean, founder and CEO of California-based Intersect Capital, which ranked 94th.The tenth On CNBC’s Top 100 Financial Advisors List of 2021.
“Saving was more than what we spent every month,” Thomas said.
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McClain said the percentage that is provided can change, depending on the athlete and the stage of their career. It could be 40% in the player’s first decade, 60% to 70% in the second decade, and 80% in the third decade and beyond because “cash flow is very high” at that point, McClain said.
He added that this approach helps players choose the lifestyle they want to live “before your lifestyle chooses it.”
“You have to make the decision from the beginning” to build a surprise, he said.
2. “Always prepare for rainy days”
“Always prepare for rainy days,” said Fowler, 36, a defensive player who won a world championship with the Chicago Cubs in 2016. It is currently a free agent.
“You never know what will happen,” he added. “You are [could] Being in a car accident you can stop working.
“Hope for the best, but prepare for the worst.”
Dexter Fowler during Game 7 of the 2016 World Championships.
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Fowler describes himself as a life saver. As a young boy, he would keep physical Christmas checks from family members, because he didn’t know they needed to cash them.
“People live in the moment,” he added. “Don’t get me wrong, take your deputy.
“I love watches; these are my vices, but I don’t have 10 vices,” said Fowler. “That’s how you go crazy; you’re going to spend money but you’re spending it the right way.”
3. Pay attention to the financial consequences
For individuals who earn large amounts of money, there is no immediate consequence to poor financial decisions, MacLean said.
“You might have a big bill for Amex, [you’re] “Hit, make some big purchases,” he said, “but because there’s still money coming in, the card is still working. You don’t feel like it.”
As MacLean explains, “The laws of finance do not follow the laws of physics.”
This is what happens in sports: you save a lot of money but you have a great lifestyle and you don’t let it get worse.
Joe McClain
Founder and CEO of Intersect Capital
“If you are walking through tree trunks, you have to watch where you are going, and if you take your eyes off it, you will fall into the water,” he said. “If you close your eyes to your money when you make a lot of money, nothing will happen.”
Until the money dries up, that is.
“A lot of athletes think it’s never going to stop, or it’s never going to end,” Fowler said Tuesday during a question-and-answer session at Future Proof. “But it is.”
4. “Live Like You’re Already Retired”
“Live like you’re already retired,” Fowler told CNBC.
The thinking is: If you spend too much during your working years, it’s hard to switch to a more frugal lifestyle later — which may be necessary for someone who doesn’t have a nest egg to support extravagant spending.
“You don’t have to change your lifestyle when you retire,” Fowler said with this mindset.
“It’s hard to do,” he added. “You’re in the locker rooms and clubhouses… [and] You see a man riding in a [Lamborghini].
“You’re like, I’m making seven times more than you make, and I don’t feel like I can stand that.”
5. Leave your money on the road
MacLean said Thomas and Fowler, both in their 30s, have a long investment time horizon — and that’s a solid thing.
Time uses the power of compound interest, which is calculated on principal plus accrued interest – which means your investment gains accrue more quickly.
“This is what happens in sports: you save a lot of money but you have a great lifestyle and you don’t let that escalate,” McClain said. “Letting this money accumulate for another 10 years, double it again, [then another] time, when it becomes a multigenerational fortune.”
By comparison, it “would not allow a compounding effect” by continuing to spend heavily and shrinking the portfolio over the next decade, he said.
Fowler puts this idea into practice.
“We want to save the next ten years,” he said of his family. “We cut everything off.”
6. Look beyond the lump sum
Fowler earned a signing bonus of about $1 million in 2004, when he was drafted by the Colorado Rockies. He said he was just out of high school, he was 18 and got his first contract.
“You’re sitting there and you’re like, I have a million dollars?” He said. “A million dollars and then a ton of money.”
“But a million dollars wouldn’t go a long way,” he added.
For everyday retirees, the same principle may apply – a million dollar nest egg may seem like a lot of money to live on but may not reach as far as people expect during a retirement that can last three decades or more.
Upon receiving the signing bonus, Fowler immediately wanted to buy a car. Fowler said all of the newly drafted players were buying Escalades and Range Rovers – so he bought a Range Rover, against the advice of his father, who recommended renting rather than buying a car. (Fowler now leases his cars exclusively; he has two Teslas cars. Cars are “expendable assets,” he explained.)
Fowler added that the tax was also a large part of his signing bonus. Then he realized, playing the minor league ball after enlisting, that it was hard to live on that salary, which was bringing him roughly $300-$400 every two weeks — making the bonus necessary to help make ends meet.
“I saw a bunch of guys getting off-season jobs,” he said. “I was lucky enough that I didn’t have to do that.”