People often talk about how much professional athletes are paid, often with the assumption that they are very wealthy and unlikely to face financial issues.
However, the situation is not necessarily so black and white. Although there is a significant amount of money involved in professional sports, there are some unique difficulties that rugby players and other athletes will likely face.
Income volatility is one of the biggest financial challenges for professional rugby players because your income can easily change overnight.
For example, your contract with a club may only be five years, or a bit more if you are lucky, so you do not have long-term job security. There is also no guarantee that your next contract, if you get one, will pay the same as your current one.
Additionally, if your performance suffers, you sustain an injury, or your club even faces financial difficulties, your contract could come to an end prematurely.
As a result, you could lose your main source of income with little warning, and this can lead to financial difficulties.
Further to this, you will likely retire from playing at a young age. This often means that you earn a large income in a short space of time before moving into a second career, with a different level of income.
Fortunately, you can plan ahead so you are able to deal with income volatility and continue working towards long-term goals, even if your earnings fluctuate.
Read on to discover some of the ways rugby players can prepare for income volatility.
Build an emergency fund
An emergency fund provides an essential buffer against income volatility. If your contract ends and you find yourself without a club, for example, your emergency fund could cover your living expenses in the short term until you start playing again.
Additionally, when you retire from playing, you can rely on your emergency savings until you start generating an income from other sources.
You can also use these funds to top up your income if your earnings reduce for a period, so you can maintain your lifestyle.
The typical recommendation is that you save enough to cover your expenses for three months, but you may want to save more than this if you are a rugby player with a volatile income.
Invest for the future
During periods when you are earning a regular income, it may be sensible to invest some of that wealth for the future.
This is especially important for rugby players who experience “two retirements” as you may find it more difficult to save for later life when you finish playing and move into your second career.
Paying into a pension and making investments as early as possible can help you build wealth for the future. You can then draw on these funds later when you retire from your second career.
You may also rely on savings and investments to fund your lifestyle if your second career is not as lucrative as professional rugby.
Live within your means
Living within your means is important because overspending can make you more vulnerable to income volatility.
For example, if you need to spend most of your income to fund your current lifestyle, any drop in earnings could leave you with a significant shortfall.
Meanwhile, if you budget carefully and only spend a portion of your income, you may find it easier to absorb a reduction in earnings without making too many sacrifices to your lifestyle.
This also means that during periods when you earn more, you have additional funds to contribute to your emergency savings or investments.
As such, it may be a good idea to draw up a detailed budget that lists all your outgoings and your current income. Where possible, try to spend less than you earn and allocate a certain portion of your income to savings and investments each month.
Focus on protection
The right protection can cover you against unexpected events, so you are still able to meet your financial obligations.
Income protection, for example, may pay you a regular income if you are unable to play due to an injury. This could be especially important if you are ever permanently injured or diagnosed with a serious illness that forces you to retire early.
Without this valuable protection in place, you may have to rely on savings, and eventually, expensive borrowing to cover your living expenses.
It may also be beneficial to take out life insurance to protect your family against financial hardship should anything happen to you.
Work with a financial planner
Many of the steps to protect yourself from income volatility, such as making investments or contributing to a pension, can be challenging to manage on your own.
Fortunately, working with a financial planner can be a huge help here. They will be able to explain various things, such as the different types of protection available or which savings and investment options are most suited to you, for example.
They will also offer valuable support when your situation changes, and your income increases or decreases. At this stage, they can help you make the necessary adjustments so you can meet your financial obligations and continue working towards your long-term goals.
Get in touch
Income volatility can be challenging but we can help you prepare so you can remain secure. Please do get in touch with us at DBL Asset Management if you need advice.
Email enquiries@dbl-am.com or call 01625 529 499 to speak to us today.
Please note
This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future results.
The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates and tax legislation may change in subsequent Finance Acts.
Note that protection plans typically have no cash in value at any time and cover will cease at the end of the term. If premiums stop, then cover will lapse. Cover is subject to terms and conditions and may have exclusions. Definitions of illnesses vary from product provider and will be explained within the policy documentation.
