Earned $61 Million Playing In The NBA - Now Has Only $3,000 In The Bank
How does someone earn $61 million dollars over 16 years end up having only $3,000 in the bank?
(Hmm, sounds just like what I was talking about in my Crypto Rich article)
It happens to nearly everyone who gets rich quickly but doesn't learn the wealth mentality. It happened to former NBA player Joe Smith.
Smith began his professional basketball career with the Golden State Warriors when he was the #1 draft pick back in 1995.
When asked what were his biggest mistakes he said he didn't account for taxes, which could amount to half of his contract amount.
His second mistake was that he wasn't careful with what he bought. Every time he was traded to a new city (which was 12 times) he purchased a house. When it came time to sell his old house, he would always lose money on the sale. He did say that he only financed one house, the rest he paid cash for.
It wasn't just houses, he says he had quite a bit of jewelry, oh and cars. Lots of cars. The list of cars he owned would rival any Arab shiek.
Corvette
Mercedes 500sl
Mercedes 600s Coupe
2 Range Rovers
Bentley
Another Mercedes
Panamera Porsche
All these cars were mentioned in a brief trailer for a new show, called “Back In The Game,” in which A-Rod helps struggling sports stars with their finances.
Let's hope A-Rod helped the guy. I couldn't imagine what it would be like to have had so much and then lost it all.
Income For Life
But he only has himself to blame. Where he is now is a direct result of all of his past choices. He could have learned how to properly invest. Investments that could now be supporting him. Let's do some quick math.
Say out of his $61 million he paid 50% to taxes. Let's make that $30 million. Now if he spent $1 million per year over those 16 years, he would have lived quite a luxurious life and still had $14 million left.
The stock market has had an average return of 11.78% since 1995. If he invested that $14 million in an index fund at a rate of $1 million per year for the next 14 years he would have had $35.6 million dollars.
Using the 4% rule, which states you can withdraw 4% of your investments every year and never run out of money, he would be able to live off of $1,424,000 per year! The 4% is the long-term safe growth rate of stocks + dividends. Meaning that your investments will grow that much every year and you can “harvest” it to live off of without drawing down the principle.
That means he would have lived off $1 million per year while working, but when he retired he would have even more money to play with! And this money would always be there, forever!
That is the power of wealth building. Do you want the fancy cars now or do you want to build a money machine that will earn you money without any more work from you? Stuff or income for life?
To me, the choice is obvious.
Because a little sacrifice now will enable you to live the life of your dreams later.
But some people come from a background where financial literacy is non-existent. He might not have even known that the income for life strategy that I mentioned here was something you could do.
Fortunately, the NBA has begun to require that their new players attend a financial literacy course. This might just be the spark of knowledge that will save a few of these guys from a future in which they lose it all.
Check out the video here:
I’ve never been a fan of A-Rod, but I like him more now. Great insight on finances. This should be taught in school too.
Any teaching will not be retained unless the student WANTS to learn it. Still, just making people aware of some financial things would be useful even if they don't care about it right away.
i played pro sports and know the albert einstein's 8th wonder of the world is real. compounding interest.
love the article!
Hey, thanks joe
It is pitiable what has become of his condition. However, that problem is not exclusive to millionaires.
I strongly believe we start to fail financially even from our humble beginnigs.
He that is not diligent in small things can bot be in big things.
So, the financial education we talk about, we should all strive to begin while we are living in thousands. When we perfect the art in thousands we may better manage our millions
Oh yes, most people don't have millions of dollars at one time but they still lose everything they make. It is just that losing so much makes for a better study of why they lost it.
I agree with you.
Once more Beautiful post.
Have a blessed day!
I was just suggesting this on another post earlier today, specifically that if players are spending time in the G-League that they take financial education classes in addition to playing. It wouldn't be a bad idea to have the regular players take them too. It's embarrassing how many broke millionaires there are in professional sports. Hopefully that helps them reduce the poverty of pro athletes. Ha ha.
Maybe the times are changing. I have heard of a professional baseball player that was living out of his van. Not because he spent everything, but because he calculated that since he was traveling so much that paying rent or a mortgage was a waste.
That's great! Good for him. He'll have a bunch of money saved up when he gets done.
I have heard of some NFL player who was driving his old beater car from college that someone gave to him for free. He didn't want to spend all his rookie contract money on a car, so he kept the old one. That's so cool to hear stories like that because they're people who have good heads on their shoulders and they're making something of their life. It's fun to root for them to succeed!
It's the same reason why people are taught only certain types of investing strategies, if they're taught any at all. As far as sports leagues go they love it when players spend too much, which is why they never discouraged the culture of overspending and flashy lifestyles amongst players (tons of peer pressure and keeping up with each other) because it's free advertising for the leagues if they're seen balling out and it makes sure the players have to keep signing new contracts for income even if their bodies are breaking down.
Otherwise players would always have the option of signing maybe 1 lucrative contract and then deciding what they wanted to do after or pursue the second contract with more bargaining power if the league knew they didn't need the money, instead of being financially obligated to take whatever is offered.
Employers love when employees are in rough financial spots because it increases their bargaining power. Regular people would do well to know that as a collective whole.
You're right, the teams could do more to help the players, but they don't view it as a long-term partnership, they most often just view the players and talent to be used. It doesn't matter what happens to each person who plays, what matters is the game. More often then not, I feel that the teams don't care about the players at all. That just means the players need to get smart and help themselves and each other out.
This is a great read to show a person who doesnot value personal development.I try as hard as i can to encourage my community in Uganda to read personal development books.
This post is summarised by a quote by one of my best legends Jim Rohn.
Amen
Jim Rohn's teachings are outstanding. I have learned so much from him.
Sadly, cases like that are very common.
A lot of people in sports and entertainment in general seem to not understand at all how to properly manage money.
I thought that with the amount of money they got, they would be sorrounded with financial planners giving them advises (not that a financial planner is always needed, but with people like this it’s obvious they need one)
They do, but their best interests are not in mind and they get milked by everyone around them, like mobilewriter said.
Many people don't care to learn about finances, even if they come into a lot of money. For them I would hope they could get a good, and trustworthy, financial advisor.
He was a good sports man but not a good investor. Those who guided his investment were actually money hungry people.. They never cared about the loses he would incur.
The math you've presented is irrefutable. 16 years as a professional athlete is a very long career, most are lucky to see 1/4 of that amount of time--especially in football. I hope A-Rod can do some good for these athletes and help them pick-up the pieces of their poor decision making.
I'm interested in seeing an episode of the new show to see if there is anything of value to be learned.
That's pretty cool what A-Rod is doing, maybe he's not such a bad guy after all! Are you familiar with former pro wrestler Diamond Dallas Page? He has helped a lot of former athletes as well, however with their personal issues like drinking and other demons, not necessarily financial issues. It's great when athletes give back. I hope A-Rod can help some of these players out. He made a good impression on me during Shark Tank and apparently he's a really good business man. Great post!
I think I heard in passing of him doing this initiative. A lot of wrestlers seem to get addicted to something (alcohol, drugs) and go broke.
That's great the NBA is doing that. A lot of these guys come from literal poverty. Middle class families aren't taught investing principles, let alone some of these athletes who's only financial education comes from rap videos.
With oft repeated slogans like "money to blow", "make it rain", and "you can't take it with you", it's no wonder they're all broke.
Hopefully they will put some aside to at least guarantee a middle class life after they retire.