Financial Planning

Financial Planning for Extreme Sports Athletes

Nathan Mueller, MBA
Nathan Mueller guides people on how to overcome money challenges, grow their wealth, and understand the intricacies of their personal financial circumstances. Nathan is the founder, principal financial planner, and financial coach for BlackBird Finance. Nathan graduated from Western State University of Colorado with a Bachelor of Arts in Business Administration and attended the Keller Graduate School of Management and earned a Master of Business Administration with Distinction - MBA, B.A. Business Administration.

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Extreme sports athletes live lives filled with adrenaline and adventure, pushing their bodies to the limits in pursuits like mountain climbing, surfing, snowboarding, and skydiving. While these athletes excel in their disciplines, the financial aspects of their careers are often complex and unique, requiring careful planning and management to ensure long-term financial stability and success.

Unique Financial Needs of Extreme Sports Athletes

The financial needs of extreme sports athletes differ significantly from those of traditional athletes or other professionals. Firstly, extreme sports often come with higher risks, leading to a greater need for comprehensive insurance policies that cover injuries, equipment loss, and even life insurance. These athletes may face sudden career-ending injuries, making disability insurance essential to maintain their livelihood in such events.

Additionally, sponsorship deals and endorsements play a critical role in the income streams of extreme sports athletes. Unlike team sports athletes, who may have stable salaries, income for extreme sports athletes can be highly variable, depending on the season, competitions, and the sport’s popularity. This variability necessitates prudent financial management to ensure that periods of high income can offset the leaner times.

Another unique aspect is the necessity for significant investments in equipment and travel. The cost of maintaining top-tier gear and traveling to remote locations for competitions and training can be substantial. These expenses must be factored into the financial plan to avoid cash flow problems.

12 Financial Planning Strategies for Extreme Sports Athletes

Given these unique challenges, extreme sports athletes should adopt several key strategies to manage their finances effectively.

Enjoy Your Income and Keep the Big Picture in Mind

    You reached an incredible level that very few get to, and it takes a lot perseverance to get here. Celebrate a comfortable lifestyle and splurge on some things that bring you the most joy. Then, keep an eye on the big picture. You may need to cut back on your lifestyle once your career ends, and this can be harder for an entire family that has gotten used to a certain level of luxury. There may also be a desire to live bigger than your means as you see other extreme sports athletes do so. They may have more endorsements or sponsors or aren’t being money-savvy. Stay humble and save for the future.

    Build an Emergency Fund

      An emergency fund is crucial for extreme sports athletes due to the unpredictable nature of their careers. This fund should ideally cover six to twelve months of living expenses, providing a financial cushion in case of loss of income. Consider adding a second emergency bucket just for medical expenses. Building the medical bucket, at least to your deductible and out-of-pocket costs, could potentially be a game changer financially if something did happen.  This safety net can prevent the need to dip into long-term savings or take on debt during tough times.

      Secure Comprehensive Insurance

        Insurance is a critical component of financial planning for extreme sports athletes. Policies should include health insurance, disability insurance, and life insurance. Disability insurance is vital, as it can provide income replacement if an athlete cannot compete due to injury during peak career. Ensuring adequate coverage can protect against the financial impact of accidents and injuries inherent in extreme sports.

        Don’t be surprised by the cost. Insurance companies charge more for the additional risks of extreme sports. When choosing health insurance plan look for one that has the biggest network of medical professionals as athletes often travel. Travel insurance can also be necessary if the athlete travels outside of the US.  Don’t be shy in choosing a lower deductible plan with a higher monthly cost. There’s a good chance you will need to use medical insurance at some point which can easily make up the difference.

        Diversify Income Streams

          Given the variable nature of income from sponsorships and competitions, diversifying income streams can provide financial stability. Athletes can explore opportunities such as coaching, public speaking, writing, and creating online content. These alternative income sources can supplement primary earnings and provide a more stable financial foundation. An athlete can look to diversify income streams further from gaining income away from the industry. This may include things like owning a business, investments, or real estate.

          Manage Sponsorships and Endorsements Wisely

            Sponsorships and endorsements are vital for many extreme sports athletes but require careful management. Athletes should negotiate favorable terms and ensure that contracts align with their brand and long-term goals. Working with experienced agents can help maximize the value of these deals and ensure they are structured in a way that benefits the athlete financially and professionally.

            Invest in Long-Term Growth

              Investing in the future is crucial, especially considering the often short career span of extreme sports athletes. A diversified investment portfolio that includes stocks, bonds, real estate, and other assets can help grow wealth over time. What you don’t want to do is have your money not working for you and sitting on the sidelines in a checking account. You may feel uncomfortable knowing how to invest money and, therefore, let your money sit idle, but time is money, as the old saying goes. Athletes should focus on long-term growth rather than quick returns, ensuring financial stability beyond their active sports careers.

              Plan for Taxes

                Tax planning is essential for extreme sports athletes, who may have income from multiple sources and jurisdictions. Since income may be significantly more in short time span the athlete will find themselves in a high tax bracket. Understanding tax obligations and taking advantage of deductions and credits can minimize tax liabilities. Certain types of investments may be more favorable during the high tax years such a municipal bond. Working with a financial planner and tax professional familiar with the sports industry can help navigate the complexities of tax planning and ensure compliance with all regulations.

                Prepare for Retirement

                  Retirement planning should begin early in an athlete’s career and hit hard. Yes, it may be harder to give a shit about retirement if you are 20 versus 50, but your future self and wealth will be thankful. Contributions to retirement accounts, such as IRAs or 401(k)s, should be prioritized. They offer tax advantages and may help you offset your tax liability reducing you to a lower tax bracket. Additionally, athletes should explore options like annuities or other investment vehicles that can provide a steady income stream during retirement, which can come a lot earlier.

                  Educate on Financial Literacy

                    Financial literacy is a crucial component of effective financial management. Extreme sports athletes should learn about personal finance, budgeting, investing, and other financial topics. This can help with engagement and understanding the importance. Resources such as financial workshops, courses, and working with knowledgeable advisors can enhance financial literacy and empower athletes to make informed decisions.

                    Plan for Post-Career Transition

                      Planning for life after sports is vital. Athletes should consider what career or business ventures they want to pursue once their competitive days are over. This might include further education, starting a business, or transitioning into a related field such as coaching or sports management. Set some long-term goals now and start saving, even if plans change, having saved money is not the worst thing. There are a variety of career tests out there that can help get an extreme sport athlete exploring other types of careers. Check out this free career test by CareerExplorer (not affiliated with and no compensation is received) or the RedBull Wingfinder.  A clear plan for the post-career transition can ensure continued financial stability and personal fulfillment.

                      Be Aware of Get Rich Ventures

                        We talk about diversifying income streams by potentially starting a business. Make sure you do your due diligence first. Seek a business advisor. Consider going with a franchise where many of the business fundamentals have been figured out for you. Check out this directory of franchise opportunities by FranchiseDirect (not affiliated, nor compensated from). Know that various get-rich schemes out there seem legit but aren’t. Friends and family may come forward with ideas and propositions. This can be either good or bad. Know that if presented with a business plan, you are looking at a lot more sound of an idea than if you have a brother-in-law who wants to start a sports collecting business and has no business plan.

                        Seek Professional Help

                          Financial planning for extreme sports athletes requires a nuanced approach that considers the unique challenges and opportunities inherent in their careers. Working with knowledgeable advisors and maintaining a proactive approach to financial management will enable these athletes to focus on their passions while securing their financial futures. Athletes should consider finding an advisor that is licensed as a fiduciary and a fee-only advisor. These financial advisors will have the least conflict of interest and your best interest at heart.

                          This article was originally published here and is republished on Wealthtender with permission.

                          About the Author

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                          To make Wealthtender free for readers, we earn money from advertisers, including financial professionals and firms that pay to be featured. This creates a conflict of interest when we favor their promotion over others. Read our editorial policy and terms of service to learn more. Wealthtender is not a client of these financial services providers.
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