A wise man once said that you should never take financial advice from someone who works off commission. The problem is that most people who dish out financial or business advice do so on a commission basis. I don’t get paid commission to write this so everything I share here is completely unbiased. I don’t have a hidden agenda. But I HAVE wanted to have this conversation with professional athletes and entertainers for some time so I am happy to have this opportunity.
For too long our community has been plundered of its resources. Businesses move in and sell to us but dont hire us. Landlords rent to us and then they take all that money and invest it back into their own community. Professional athletes are no different. People see these wealthy, yet impressionable young men as prey and they circle them, gobble them up and then when they are done with them they move onto the next.
This post is going to touch on 1) how you can and should annuitize your income so you NEVER go broke, 2) why you should utilize this strategy as opposed to living the fast life and also 3) how you can invest back into your community in a way that allows you to maintain your wealth, live out of your wealth and use your wealth to elevate your people.
What is an annuity?
First we need to understand how an annuity works and why it would be wise to embrace this strategy. An annuity is a financial instrument that allows you to purchase an insurance like policy for lets say $1 million and this policy will pay you out a stream of income annually. An annuity is great for those with capital because the interest rate is competitive and it allows you to maintain your wealth.
I propose this idea in response to the alarming statistics about athletes who go broke shortly after they leave the league. Using our hypothetical example, if you purchased an annuity paying 7% and put up $1 million you would then generate income of $70,000 per year passively. You might not be able to pour champagne on butts with this amount of money but you wont starve and you will be doing better than roughly 80% of America. This example is on $1 million though. If athletes are being paid $10 million per year or $10 million total then the same $10 million at 7% yields 700k per year WHILE maintaining your principle. FYI, insurance income is TAX FREE! That means what you earn is what you keep! This is one example of how you can and should leverage your athlete salary into perpetual wealth and passive income.
Sidebar: There are many ways that will allow you to annuitize your income that aren’t insurance contracts. You can purchase multi family real estate, you can invest in an existing business or start up, you can purchase dividend paying stocks. There are a ton of ways to accomplish the goal but the goal should be to live out the gains not the principle because the principle is fleeting. If you invest in real estate your 7% gain can turn into 25% or better. Using our 10 million dollar example you can see that there are huge benefits to this.
Why Annuitize? That big pay check doesn’t last forever
I propose this solution because most times athletes who make big money tend to live like they are going to make big money forever. Athletes who make $10 million, for example, in one year will spend like they are going to make $10 million for the rest of their life (see Vince Young). Statistically we know that the money has to stop at some point so it would be wise to plan the rest of your life at the beginning not the end. This is why it is important that you have the patience and wisdom to scale back on all that shiny stuff and invest what you earn. I promise you that you don’t need 10 cars and you don’t need 100 pairs of shoes. Your community needs resources though and you will need to eat for the rest of your life. It would be wise to avoid all the expensive European items and buy what will allow you to maintain your principle. You can buy expensive items out of the gains. Remember: “Assets buy luxuries”…
You have to invest what you earn because that is the only thing that you can truly count on for the future. Your money and your wealth are the key to financial independence, NOT your athletic or rap talent. I know that sounds crazy but the money is where the true power lies. Your money can buy time, opportunities and MORE MONEY. Don’t waste this money chasing things that will depreciate in value. Stack your money and learn how to live out the house that your money, not your skills, built.
So many people are looking to go into business but lack the funds to do so. You have the funds and you have to abstain from the flashy stuff and trying to impress people. You have the opportunity of a lifetime and you have to stretch it to cover you for the rest of your life time. You do that by investing, preserving your principal for yourself and your heirs and living out the gains!
The benefits of investing back into your community
If you look at real estate in the inner city and urban communities property values are dirt cheap. That is at least until the Asian and Jewish money comes in. You have to realize that the hood is a viable investment. Contrary to popular belief. It would be wise to put your money in there using your competitive advantage before other cultures do!
The difference between low property values and high property values is the willingness to invest. Most of these people only come to these areas after they have tapped out the opportunity in major areas. For example, in New York, since there is really no where else to build in Manhattan, developers are starting to move into Brooklyn and more than likely Harlem in the near future. The key is that there is opportunity there. I believe that if you can develop your own with your own then your community will have the means to afford to live where you build.
We all know that gentrification displaces people in our community but we also should know that we have the power to gentrify and build up our own. If we invest in our community by developing and owning our community we get to reap the rewards that come with providing solutions. The schools, businesses, housing etc will all be owned by YOU and you and your heirs will be able to eat off the appreciation and cash flow.
I know of a black family in Watts who executed this strategy beautifully. The grandfather purchased land and build businesses on the land. Years later, after he passed, his kids inherited land that had appreciated substantially and the businesses that existed there, FREE and CLEAR. Land in Los Angeles, even in South LA is not cheap and to get it now before it starts to completely boom is what we should all be doing. The best time to plant the seed was 200 years ago but the second best time is today.
I encourage all these athletes to strategically think about how they are going to stretch their income for the rest of their lives with financial tools. I would love to work with you and create a financial plan that will allow you to live like no one else and then later, after you retire, live like no one else. If you have any questions please email me at firstname.lastname@example.org