In the new NIL-era of college sports, a lot of young people are suddenly finding themselves with more money than they’ve ever had before. In some cases, depending on how long their career is, it may be the most money they’ll ever make all at once. One good year, one big bonus check, or one big sponsorship deal doesn’t necessarily mean the same level of financial success the next year. (Of course, sometimes it does, and that’s great!) Even top college football stars may have their careers cut short by injury and miss out on a career in the pros. This creates a problem for anyone who has suddenly come into money: How do you safeguard your future? What do you do with a windfall? Do you spend it, save it, invest it? And how do you know? These are questions that people in and out of sports have to wrestle with.
Fortunately, it’s less complicated than it may seem. When it first appears, a big check can understandably send thoughts racing to new cars, bigger homes, vacations or luxury goods, but most people have the common sense to know that they need a plan. Spending it all upfront may bring some instant satisfaction, but delayed gratification will pay dividends. Most people know this. That’s all well and good, but where do you begin? And can you afford to enjoy yourself a little? You earned it, after all.
These are tough questions, but they’re the right ones. Fortunately, handling a windfall—which is a good thing—isn’t all that different from any other personal financial situation.
The most important thing to do when experiencing a windfall is to create a budget. Ideally, this is something that has already been developed. Understanding how much money is coming in regularly and how much is going out will allow you to plan. The budget is a guide, a roadmap, to your finances, not a prison. It should take into account recurring revenue and expenses to help clarify where your resources should be allocated. In the event of a windfall, if you already have a budget, it will be easier to see if that money should be used to reduce credit card debt, make a major purchase that you’ve been putting off, or that it should be squirreled away as savings or an investment. In many cases, you may decide to do several of these things.
If you don’t already have a budget and come into money, it’s important to work that budget out before making any major decisions. Look back at your last year or two of income and expenses. How much were you earning and spending, and on what. Break it down by categories. Most people are surprised by what they learn when they do this. (Do we really spend that much on takeout every year?!) Are you happy with that? What would you change? The budget becomes an educational tool. As you refine your budget, it will also help you understand if your financial expectations for yourself are realistic. Are you already overspending? Or maybe you’re working from an old set of expectations which are no longer true, and you actually have more resources than you used to. (There are numerous apps and worksheets that can help with creating a budget.)
Once you have a budget and understand your financial needs, it’s time to look at that windfall more closely. Have you taken into account your tax liabilities and anything owed to people like agents or managers? How much is left over? What is the likelihood that you’ll be able to repeat it next year? What if you have an injury, or your firm fails, and it’s a one-time cash influx? Think about how you would save or invest it for the future. How would it support your current lifestyle in the future?
Of course, you may determine that you’ll likely repeat your performance next year too. In that case, what would you need to save and invest? Can you buy a nicer car or move into a nicer place? Figure out what your priorities are in terms of lifestyle, taking care of your family, and how much you want to work. In this way, the budget becomes a tool for planning and can help you look into the future. The windfall, in other words, just becomes an excuse—a good reason—to make a plan and take responsibility for your financial future.
And the best part about creating that budget and planning ahead? When you get to the end, and you know what you need to take care of yourself and your family, go ahead and treat yourself. (Just be careful about how you use credit cards.) Enjoying a financial win is not just okay, it’s a good thing, so long as you can really afford it. Again, this is why the budget is so important. Once you know what you need and how much you spend on a regular basis, you’ll understand exactly how much you can enjoy yourself.
This all sounds simple. Create a budget. Learn about yourself and your financial life. Plan accordingly. It’s not complicated, but many people don’t do it. We aren’t taught about it in school. But it can change your life. Budgets can be roadmaps for the future.
Ref: https://www.forbes.com/sites/joemoglia/2021/10/20/what-do-you-do-with-a-windfall/
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