WEALTH BUILDING ADVICE FROM SELLING LA

By in Real Estate, Retirement, Saving | 21 comments

Even Millionaires Need a Budget

“More than 200 college students will get a chance to become instant millionaires when the NFL holds its draft ….But fast forward 20, 10 or just 5 years down the road, and many of this year’s crop of NFL rookies, like players before them, could end up broke.” By Russ Wiles, in USA Today, Sports

Instant millionaires are targets of unscrupulous financial advisers, extravagant overspending and yes…. financial ruin. According to the NBA, an estimated 60 percent of professional basketball players go bankrupt within five years after leaving the sport.

google image mansion

Can you afford a mansion?

Learn Wealth Building from a Basketball Agent

Selling LA an HGTV hit television program, profiles high earning Los Angeles realtors as they broker fancy Los Angeles homes. On the show most of the properties are priced north of $1 million with quite  a few hitting the $10 million mark and beyond. The episode begins with the uninterested basketball player looking at homes in the range of six to seven million dollars.

The basketball player’s mind was elsewhere and he had no interest in looking for a home.

The next scene showcased his business manager previewing properties on the players behalf.

The irate business manager asked who set the six to seven million dollar price range? Before the realtor could answer, the business manager stated matter of factly stated that his money has to last his entire life and under no circumstances is this player buying a home for that price. He admonished the realtor to scale back his search to the one to two million dollar range.

How to Make Your Money Last; Action Tips

Over your lifetime you will earn millions of dollars. You’ll probably earn those millions over decades, unlike pro athletes who earn their millions within a short time period. Either way, the money you earn, or as it’s referred to today, human capital, usually outweighs any money you’ll earn from saving and investing. Professional athletes and regular men and women need to make their earnings last their entire lifetimes.

The HGTV basketball player’s manager understood this concept and was adamant that his client was not spending all his current earnings on a 7 million dollar home, when the player could be out of a job in five to ten years. This is the type of thinking to have! The problem is that no one knows how long they will live or how much money they’ll earn. Thus, this is a problem without a clear cut solution.

1. Start Now-Create a plan to save and invest as soon as you have income. The earlier you begin investing, the longer your money has time to grow. When you are in your 20’2 and 30′s you have many earning years ahead. Don’t be afraid to put a lot of money in stock investments with the possibility of producing higher returns.

2. Keep a balanced attitude-With so many unknowns, you need to spend to live and enjoy life. Create a budget based on your current income and future goals. But, make sure that budget includes room for fun as well as saving. Avoid living extravagantly or miserly, neither style creates long term well-being.

3. Embrace the uncertainty by developing smart spending habits-The unknown amount of total lifetime income means, that the more you save now, the more you will have later when your income declines. Develop conservative spending habits and use the difference to grow your future wealth. Small changes, lead to long term gain. Do not buy a lottery ticket, that’s throwing money down the toilet. Avoid expensive habits like smoking. Buy a more modest home or car and have thousands more to spend on vacations, retirement, and your kid’s college expenses.

How do you figure out how much to spend today and how much to put towards later?

 image credit; google images mmwindow cleaners

 

    21 Comments

  1. Buying too much house seems to be the financial mistake de jour of the last 15 years.

    W at Off-Road Finance

    September 13, 2012

  2. Several of my friends have hit financial trouble because they spend as though their current income levels will always persist. Then one person gets laid off, and — uh oh! — they’re in serious trouble. I have one friend who told me that she and her husband are paying lavish rent on an apartment (they easily could find a cheaper place in their area) because they rented it before his layoff, and thought they could afford it. When he was laid off, they had to face the fact that they had zero savings!

    Paula @ Afford Anything

    September 13, 2012

  3. I think one of the best things people should have taken from the recession is that you need to spend as though you are going to need money tomorrow. Those who were savers and had a rough couple of years with job layoffs, investment declines, etc are in better shape today.

    Sean @ One Smart Dollar

    September 13, 2012

  4. My thinking has always been that you should try as soon as you can to take extra income and invest it in things that will earn you additional income over time passively. Dividend stocks, a sharing plan in a business run by others… if you do it early enough you can build up a serious source of regular, passive income within 10-15 years.

    Garrett

    September 13, 2012

  5. I remember reading before the scandals that Tiger Woods took out a Jumbo Loan for a house….When he should have been able to pay cash .
    Haven’t seen the show, but I’m familiar the scary NFL stats for Bankruptcy and divorce. Prepare for a short career and protect your first few years earnings is a great rule.

    Brent Pittman

    September 13, 2012

  6. I always made savings a priority to meet my present and future needs. It gives me choices and security now and in the future.

    krantcents

    September 13, 2012

  7. This is a hard one! This balance is very delicate – in fact lately I have been thinking that it is possible to save too much. As a matter of convenience at the moment we go with the balanced formula – 20% gets put away for the future (this is above the pension contributions which I do through my employer; universities in the UK still have very good pension schemes).

    maria@moneyprinciple

    September 13, 2012

  8. Don’t you want to punch the realtors in that show? I’ll have to write another “lessons” piece on this as a companion to yours. Mine will be about how to completely be an idiot at business. That said, I find the show fascinating.

    AverageJoe

    September 13, 2012

  9. @Paula-Ouch! I don’t get it. We have always bought “less” house (or rent) than we could afford. I’m too anxious to be unprepared for financial troubles.
    @W-Let’s hope folks have learned their lessons.
    @Sean-I don’t think it’s worth it to live extravagantly in this tumultuous world.
    @Garrett-It is never to early to start investing!!!
    @Brent-Maybe Tiger reinvested the amount of the mortgage in assets that could earn him more than the mortgage amount???? Even so, if he hasn’t put away enough for the future, then he’s just irresponsible.

    Barb

    September 13, 2012

  10. @Krantc-I’m grateful I was raised with a saving mentality, it makes life much easier in times of turmoil.
    @Marie-Granted there are some folks who save so much they don’t enjoy life at all, after all, you can’t take it with you!!! But these folks are few and far between.
    @Joe-Yes, I do feel like punching those realtors in the face!!! They are all style and little substance, and I watch the show whenever I can :)

    Barb

    September 13, 2012

  11. I saw that episode! I’m glad he stood up for his client. The player probably had no idea it wouldn’t last him…

    Lance @ Money Life and More

    September 13, 2012

  12. @Lance-The smartest thing that player did was hire an excellent money manager who was looking out for his best interests.

    Barb

    September 13, 2012

  13. @ marie, Your site really speaks to this issue of wealth preservation, not squander. And, I enjoyed meeting you as well.

    Barbara Friedberg

    September 14, 2012

  14. That show is a guilty pleasure of mine. I think it is amazing that people are too rich or too busy to look at the home they are going to live in and send agents. It is sad that those athletes and entertainers rise so fast and fall so hard. It would be nice if they had to take financial plannning 101. I guess you would have no concept if you went from noting to instant millionaire. I love the book by Michael Oher, not the Blind Side, but his actual book. He is a great example of how to do it right.

    Kim@Eyesonthedollar

    September 15, 2012

  15. @Kim, I loved the movie, “The Blind Side.” I need to check out his other book. Basic money education is sorely missing from our society.

    Barb

    September 15, 2012

  16. Balance is the key. I am ceaselessly amazed at those who have drive to make money or skill to capitalized on, yet not having a clear purpose can lead them into abyss of despair.

    Earning money is a great start, but real test is to know what is your value proposition in life. I constantly strive to think about balancing my drive to make money and my inner desire to seek happiness from within.

    Shilpan

    September 15, 2012

    • @SHilpan, I value every comment you make, what a wise insight. Money in and of itself is just paper. To integrate your dreams and life aspirations with your financial goals is a difficult yet important proposition. Let me know when you figure it all out! :)

      Barb

      September 16, 2012

  17. Thanks for the post Barb. You make a great case for never watching television.

    Cil Burke

    September 16, 2012

    • Cil, Yikes, I’m a huge tv addict :) But these folks are way over the top on this show. Common, since when is a 1 million dollar home a bargain?

      Barb

      September 16, 2012

  18. I like that show and I have not been up on it recently, but yes I have heard that most NBA, NFL and other sports players go bankrupt, most of them due to overspending and not budgeting. But there are a few who get swindled by their accountants and lawyers.

    RichUncle EL

    September 17, 2012

Trackbacks/Pingbacks

  1. CAUTIONS IN REFINANCING YOUR MORTGAGE | Barbara Friedberg Personal Finance - […] to refinance. Remember the closing costs associated with a new mortgage. If you are not going to live in …

Post a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>

WP-SpamFree by Pole Position Marketing