NFL STARS & PERSONAL FINANCE

As the Super Bowl kicks off and the spotlight is on NFL stars, I would like to look beyond the football field and give some unsolicited advice to NFL stars with regard to their personal finances.

The prime earning period of NFL stars (as well as other personages in entertainment) is usually short, besides being uncertain. It is important to know the difference between Wealth and Income:

There is a world of difference between wealth and income. It is easy to confuse the two. And many think wealth and income are synonymous. Wealth is what is owned. Income is what is earned.

Wealth consists in assets. Income consists in cash inflows.

Consider a person who owns a huge mansion, an expensive car and designer clothes, but has no job. He has wealth, but no income. He has assets which do not earn and are expensive to maintain. (The case with many a football star or an actor past his heyday). Of course, these assets can always be sold and generate temporary cash inflows. However, when they have all been sold and there is still no job . . .

Consider a person who earns an annual salary in 5 or 6 figures, but who spends all of it in consumables. He will end up not owning any asset. When he loses his job and has no assets . . .

The best case is a person who has wealth (assets) and income (cash inflows) and uses his income to generate assets that earn income which generates more assets which earn more income which generates more assets which generate more income . . .

A truly rich person is one who does not have to earn income, but has assets which earn income for him.

During his prime earning period, the NFL star should make sure that some of his earnings do not all go to consumables, but to the acquisition of earning assets which will maintain an income stream long into the future.

There should also be tax planning. Some earning assets enjoy more tax benefits than others. Tax Girl gives good tax advice. There is also some advice on maximizing earnings at a previous post, Saving by Spending.

Image from Microsoft Clipart