4 Money Lessons for NFL Draft Picks—and New College Grads

With the 2016 NFL draft finally on the books, a new wave of young athletes are about to plunge into a world of financial chaos, which will end badly for most of them. According to a recent report from the National Bureau of Economic Research, 16% will end up bankrupt at some point after their careers, and nearly 80% will be on the verge, according to a 2009 report from Sports Illustrated.

The working stiffs among us may have difficulty feeling pity for these athletes, many of whom start their careers with big signing bonuses and go on to earn more money in the span of five years than most of us will earn in our lifetimes. Truth is, most college graduates start their working careers deep in the hole with student loan debt and must then fight their way up a career ladder that might earn them annually what some players earn in one game.

In the realm of financial management, though, newcomers to the gridiron or the workforce don't have to have the same income to face the same financial challenges. Signing bonuses and high salaries aside, young pro athletes are no different than any new grad who is thrust into a world where many financial decisions can have life-changing consequences. And pro athletes have the same vision as the rest of us, which is to build wealth and make it last a lifetime.

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The challenge specific to pro athletes is many of those critical decisions are compacted into a very short time frame while the average person has the benefit of time to make mistakes, learn from them and change course. Plus, their early retirements could last 60 years while most people might get just 25 years.

Despite those differences, the same concepts of money apply to both, and both can benefit equally by applying the same principles of planning and money management.

1. Learn the Essential Concepts of Money Management

Most young people leave college with little knowledge about managing money. It is stunning to learn that many NFL rookies don't even have a checking account or know how credit works, and the same can be said of many people coming out of college. So, it may be asking a lot for them to grasp some of the key concepts of money management that, if applied early on, could set them up for life.

For example, if young athletes fully understood and appreciated the most fundamental and powerful money concept of compounding interest, many of their money issues would be solved. Instead of spending a $500,000 signing bonus on cars, clothes and toys, it could be invested to earn a modest 5% a year for 40 years, growing to more than $3.5 million. Or if a person starting a career in his or her early 20s could invest $500 a month, and increase it by 10% each year for 40 years, the compounded returns would provide more than $4.7 million in retirement. The greatest asset young people have is time, but most don't understand its value until it's too late.

2. Live Below Your Means

It's easy to pile on pro athletes as money wasters who can't build wealth because they live too large. While that may be true for many of them, it is also true of many college graduates earning their first salary. Of course, "living large" is a relative term. Whether it applies to high-earning athletes or average workers, wealth will always be elusive for people who lack the discipline to live below their means.

Pro athletes have a much harder time of it because many try to maintain some semblance of the lifestyle they created in their playing years after they leave the sport. Indeed, many young people are tempted to chase a desired lifestyle before they have secured their financial future. Pro athletes and working people alike need to distinguish early on between needs and wants, and be willing to make the necessary choices according to a strict budget.

3. Master the Exercise of Discipline

People who lack a clear vision of their future goals tend to spend their money in the present. People with clearly-defined goals and a strategy to achieve them are more likely to maintain the discipline needed to stay on course. Whether it is living below your means to achieve a savings goal, or investing in the stock market to achieve a retirement goal, it requires a strategy.

Without the discipline to stay the course, emotions will fill the void. It is emotional behavior that leads to impulse purchases, or following the herd when the stock market declines, or any of the other costly mistakes people make.

Studies show that people who have clearly defined goals and a well-conceived strategy to achieve them are more likely to muster the discipline needed to follow the strategy. Anyone who has risen to the pinnacle of a sport, or successfully completed college, understands the focus and discipline it required to achieve that accomplishment. If that same level of focus and discipline is applied to money management, the issue is solved.

4. Don't Go it Alone

The stories of pro athletes surrounding themselves with the wrong people who proceed to lose their fortunes are infamous. Unquestionably, NFL draftees need to surround themselves with people who actually care about them and who have their best interests at heart. Athletes understand the value of having a coach, a person who keeps them on track, holds them accountable and guides their development.

It is no different in money management. Everyone needs a financial coach. Young people in any career should latch on to a financial mentor, whether it's a trusted financial adviser or a person who has traveled the same path, if for no other reason than to hold them accountable to their goals and validate the critical financial decisions they make early in their lives.

Woodring is founding partner of San Francisco Bay area Cypress Partners, a fee-only wealth consulting practice that provides personalized, comprehensive services that help retirees and busy professionals to enjoy life free of financial concern.

Craig Slayen, a new partner with Cypress Partners, contributed to this article.