Learning from the Financial Mistakes of Sports Celebrities

Ron Lieber of the New York Times offers 3 lessons to the financial blunders of sports celebrities (bold highlights mine)

Michael Vick will take the field on Sunday wearing the uniform of the Philadelphia Eagles, who took him in after his imprisonment for helping to run a dogfighting ring.

But thanks to his personal bankruptcy filing after he went to jail, he will also be playing for BMW Financial Services, Dodson Pest Control, Summertime Pool and the Monticello Woods Homeowners Association. They are not sponsors. Instead, they and many others have a claim on his future earnings.

Bankrupt professional athletes are a sad fixture on the sports scene, and Mr. Vick isn’t even alone among quarterbacks who have hit the financially injured reserve list. The former Cleveland Browns star Bernie Kosar and the current New York Jets backup, Mark Brunell, have had their brushes with bankruptcy, too.

Sports stars may or may not mess up more often than the average person who earns a lot of money really fast, but their troubles seem outsize because of their fame and the pathetic schemes they fall for. The stakes are high for football players in particular, since their average professional career lasts just four seasons or so and may leave lingering injuries and the health costs or physical limitations that come with them.

Mr. Vick is the rare athlete who is getting a second chance. His lucrative new contract with the Eagles should allow him to pay all of his creditors in full.

Read the rest here

Mr. Lieber’s lessons can be summed up as: avoiding “questionable schemes” of investments, limiting “outsize financial gestures” or largesse and seeking “professional financial help”

It is true that throwing money to businesses or to financial assets, where insufficiency of knowledge or comprehension to the undertaking dominates, does not represent investments, but gambling.

Also, it takes a lot of introspection to manage the ego. This would be the most difficult part, self-control. As Confucius once said, he who conquers himself is the mightiest warrior.

And lastly, professional help represents an option but not a prerequisite.

That’s because as I have previously stated

financial success depends on a simple equation:

Income – Expense = deficit or surplus

If spending is greater than income where constant excess spending is financed by drawing from future income (debt), one ends up consuming wealth…

It would need or take only common sense and self-discipline to observe this rule.

And common sense says that self-education should account for a vital part of the action to achieve self-discipline or emotional intelligence.

Only after financial goals and limitations have been established, is when the need for professional help arises. That’s because carte blanche delegation of personal finances would signify as high risk proposition, for the simple reason that a fund manager’s incentives may not align with those of the client.

Financial Success is a Function of Common Sense and Self Discipline

Some have this misbegotten notion/belief that attaining wealth and fame translates to a state of permanence.

Well it’s not.

This should be a noteworthy example, from yahoo.com (bold emphasis mine)

Patricia Kluge was once known as "the wealthiest divorcee in history." Those days are over. Kluge, who had formerly been married to the late billionaire Paul Kluge, recently filed for bankruptcy protection, citing debts somewhere between $10 million and $50 million and assets between $1 million and $10 million….

We doubt the couple will be out on the street selling pencils anytime soon. Still, Patricia Kluge's present straits represent a remarkable reversal for a woman who, at one time, was one of America's richest and most extravagant socialites. A buzzy article from the AP explains that the Kluges once hosted parties for "royalty, corporate chieftains, celebrities, and literary figures." She lived in a 23,500-square-foot mansion, owned a winery and, by all accounts, lived the good life.

A little too good, as it turned out. Her financial troubles began to pile up during the economic downturn and creditors started seizing her assets in earnest earlier this year. Kluge and her husband had attempted to renegotiate their loans with various banks, but failed. In April, Donald Trump bought most of Kluge's winery and vineyard from Farm Credit Bank for $6.21 million.

As I always tell my wonderful kids, financial success depends on a simple equation:

Income – Expense = deficit or surplus

If spending is greater than income where constant excess spending is financed by drawing from future income (debt), one ends up consuming wealth.

So has been the case of Patricia Kluge. And so will be the case for all the rest who fail to heed or realize on this simple lesson.

[Yes, local boxing legend Manny Pacquiao, despite his newfound riches, won’t be spared from this basic rule]

And so has this predicament befallen on governments, whom mistakenly believe that they can spend their way to prosperity.

Bottom line: It would need or take only common sense and self-discipline to observe this rule, which unfortunately many people especially those in the governments and their apologists don’t have (many live under the delusion that they are beyond or immune to the laws of economics. Also the idea that they are equipped with or backed by the printing presses can do them magical stuffs).

Common Sense Education

Another treasure from marketing guru Seth Godin; this time he talks about the basic things we need to learn about: (bold highlights mine)

-How to focus intently on a problem until it's solved.

-The benefit of postponing short-term satisfaction in exchange for long-term success.

-How to read critically.

-The power of being able to lead groups of peers without receiving clear delegated authority.

-An understanding of the extraordinary power of the scientific method, in just about any situation or endeavor.

-How to persuasively present ideas in multiple forms, especially in writing and before a group.

-Project management. Self-management and the management of ideas, projects and people.

-Personal finance. Understanding the truth about money and debt and leverage.

-An insatiable desire (and the ability) to learn more. Forever.

-Most of all, the self-reliance that comes from understanding that relentless hard work can be applied to solve problems worth solving.

In short, common sense education.

We don’t need extended years for these.