Budgeting as a professional athlete: Strategies for peak financial performance

You can be a gifted athlete with extraordinary talent, strength, and coordination, but without the right coach advising and supporting you, you'll probably never reach your full potential. The same is true with money: even when a professional athlete earns a seven - or eight-figure annual salary plus lucrative endorsement deals, not having a financial plan in place can lead to money trouble later on.

In their prime earning years, most pro athletes are entirely focused on their sport, not on managing their money. Without the right financial planner on the sidelines, it can be easy for athletes to mismanage their money without realizing it. That's why it's important to have experts who can help you make smart investments, diversify your assets, and create a long-term plan that carries you through long after your sports days are over.

Here are seven financial planning and wealth management tips for professional athletes who want a road map that will take them towards a secure future.

In general, pro athletes receive most of their lifetime earnings within a short period of time, with careers ending when they're in their 30s. One study found that in most major sports, the average career length is less than six years, depending on contract terms, performance, or injuries that can cut playing time short.

Making lots of money quickly often lures professional athletes into a false sense of security. You may be tempted to overspend during peak earning years, leaving little cash for the future. That's why managing your income careful throughout your sports career and beyond can help you find financial security and freedom after retirement.

Start by understanding how much cash is coming in and what your expenses are, so you can begin managing your money rather than spending it too quickly on cars, homes, and vacations.

Regardless of how much you're earning right now, that salary will end abruptly when your playing career does, so the sooner you develop good saving habits, the better you can safeguard your money for the future.

Putting aside one-third or even half your income now can set you up for the years ahead when your sports earnings will dip or end. Set up direct deposits into your savings and investment accounts. With pre-authorized contributions (PACs), you can choose the amount you'd like to contribute and how often. You just need to choose the amount you want to save and how often you want to save for (ex. weekly, biweekly or monthly).

Now is also a great time to get sport-specific health insurance, which will pay out a lump sum if you get injured and can no longer play.

For some professional athletes, receiving substantial amounts of money while you're playing can create the illusion you can afford anything you want. This can lead to overspending, which isn't a sustainable habit. Plus, you'll find it more difficult adjusting to less cash flow once your sports days are done. By creating a reasonable spending plan early in your career, you can stick to a budget while having some flexibility to spend on things you care about.

For example, work on paying off loans like your mortgage when your earnings are higher. This way, you'll have fewer expenses to manage once you retire from your sport.

Surrounding yourself with the best team helps you reach your potential as an athlete, and the same is true when it comes to your finances. A knowledgeable financial advisor will help you make informed decisions and develop a long-term, goal-based plan that includes tax-advantaged investing, retirement and estate planning, budgeting, and a college savings plans for your children's education.

Because you may be earning more money when you're at the prime of your career, now's the time to bring on a trustworthy professional that has experience working with athletes. Your certified financial planner (CFP) can offer advisory services and customize an investment portfolio and guide you throughout your playing years and into a financially secure future.

When choosing a financial advisor, make sure you share with them your financial goals for throughout your athletic career and beyond. Because you will likely retire from your sport in your 30s, your conversation around retirement will be unique from people with a more traditional career. You will want to come up with a financial plan for how you navigate your retirement from the sport and what will come next for you.

To achieve financial independence after a career in sports, it's important to prepare for retirement now to make the transition into post-player life smoother. Advisors can offer financial advice and help athletes invest part of their salaries into diversified portfolios including stocks, bonds, mutual funds, Registered Retirement Savings Plans (RRSPs), and real estate. This investment strategy can boost your financial education and help protect your resources by spreading the risk into different types of investments.

Explore some of your investment options that would work with your financial plan here.

Everyone wants to keep as much of their hard-earned money as possible, and that means figuring out the best tax strategies for your income. Many factors impact how much income and sales taxes you pay, including whether you play in Canada or in the United States and where you live.

Pro athletes must pay tax not just on their salary, but also on signing bonuses, endorsement deals, appearance fees, and any other income earned. Given that you could be in a higher federal tax bracket during your playing career, a financial planner can tailor an income tax plan that can help offset what you owe.

That plan includes claiming all the tax deductions you're entitled to, including business expenses like your agent's fee, gym memberships, training gear, and therapeutic massages. Your advisor will also help select tax-efficient investments such as RRSPs, Tax-Free Savings Accounts, and Registered Education Savings Plans if you have children.

Once you understand how to develop a money-managing strategy and retirement plan, you'll gain peace of mind knowing your earnings are being invested and managed wisely. Working with an advisor can help professional athletes develop smart spending habits and savings strategies that not only protect your funds but also allow you to maintain an enjoyable lifestyle long after you stop playing.