When L.J. Smith, a former tight end for the Philadelphia Eagles and Baltimore Ravens, played professional football, his contracts were worth more than many Americans earn in a decade.
Despite those high payouts, Smith, who stopped playing football in 2009, says he doesn't indulge in a lavish lifestyle. "I live like a 'thousandair,'" he says.
Smith aims to make his money last by budgeting wisely, planning for the future and consulting with his financial advisor. The former football player works with his financial team to plot out monthly withdrawals from his accounts, which prevents him from impulsive overspending. "That keeps me focused," Smith says. "It keeps me in line with reality even more, and it keeps me from spending frivolously on things that I don't need."
Today, Smith and his wife are living their dream: They are their own bosses, supplementing their monthly income with earnings from their franchise investments in a secondhand clothing store called Plato's Closet and a wine-and-painting studio called Pinot's Palette.
Unlike Smith, many highly paid professional athletes manage to quickly squander their millions. The data vary on how many actually go broke. (One oft-cited 2009 Sports Illustrated estimate says that nearly 80 percent of National Football League, or NFL, players are bankrupt or under financial stress two years after retirement, while a 2015 study found that 16 percent were in bankruptcy by their 12th year of retirement.) But stories of former professional athletes investing in failing businesses, filing for bankruptcy and defaulting on loans are common, with casualties including Dan Marino, Terrell Owens and Vince Young, to name a few.
The takeaway? Whether you're signing multimillion-dollar contracts with a professional sports league or earning a middle-income salary, understanding and practicing the basics of good money management are essential to maintaining a healthy financial life.
Here's what you can learn from how ace athletes manage their money like pros.
Budgets matter. It's no secret: Many pro athletes earn sky-high salaries. The average salary for an NFL player, for example, is $2.4 million, while the average salary for a National Basketball Association, or NBA, player is $6.4 million, according to a 2016 report from Sporting Intelligence.
But it doesn't matter whether you're making a $3 million annual salary or a $30,000 salary, living within your means is essential -- and often challenging -- for athletes and nonathletes alike.
For Smith, identifying how much he can afford to draw from his accounts each month, and spending within that amount, helps prevent him from blowing through his nest egg. Automating those good financial behaviors makes it easier to stick to the budget. "What we do is separate the ideas of income and expenses," says Justin McCarthy, Smith's financial advisor and a New York-based partner with Mariner Wealth Advisors. "So, it makes it much more easy to budget, as opposed to looking at those big sums of money."
Build your emergency fund. Money-smart athletes know their ability to earn a paycheck could disappear at any moment. An injury or scandal could derail their athletic careers and halt their earnings. The same goes for regular folks: An unexpected layoff, medical emergency or other unforeseen event could limit their ability to earn a salary.
That's why having -- and maintaining -- an emergency fund is one of the cornerstones of a healthy financial life.
"For a player, we want at least two years of budget in cash," McCarthy says. For average Americans, three to six months' worth of living expenses in a savings account may be enough to cover a period of unemployment, experts say.
To round out your safety net, make sure that other risk-management vehicles, such as disability insurance and a solid health insurance plan, are up to date and appropriate for your lifestyle.
Manage your windfalls wisely. Athletes and nonathletes alike need to be wary of squandering cash windfalls, whether it's a seven-figure signing bonus, an end-of-year bonus, an inheritance from a distant relative or a modest tax refund.
It's easy to unthinkingly spend that cash because it feels like it falls into your lap. Windfall recipients "get that money, and they think it's going to last forever," says Leon LaBrecque, CEO of LJPR Financial Advisors in Troy, Michigan.
But runaway spending can eat up even the largest payouts. "The important thing is to not dramatically adjust someone's lifestyle after that windfall," says Todd LaRocca, a managing director with the Sports & Entertainment Group at SunTrust Bank. He recommends using a windfall first to pay down outstanding debts that would benefit from accelerated repayment, then looking into risk management, like disability insurance and other uses for the cash. With his athlete clients, LaRocca also looks into earmarking some of that windfall to pay any anticipated tax bills.
Bottom line: Don't buy that yacht until you've got your financial house in order.
[See: Spend a Windfall Wisely.]
Consider taxes year-round. Tax-planning is hugely important for highly paid athletes, whose tax bills may be more than an average American makes in a year. But it's also important for average Americans who earn regular paychecks. After all, the last thing you want to realize is that you have a crushing tax bill the night before taxes are due.
"On our end, the taxes are a huge portion of budgeting," McCarthy says. "We run projections throughout the year ... so there are no surprises."
Whether you're staring down a seven-figure tax bill, like a pro athlete might, or a four-figure sum, keep an eye on your tax situation and integrate tax-savvy strategies, such as contributing to an individual retirement account, or IRA, donating to charity and incorporating tax-loss harvesting -- selling investments at a loss to offset capital gains tax -- to minimize that tax bill.
Plan for life after work. Whether you're a pro football player planning to retire at 35 or an office worker counting down to your 65th birthday, planning for a long retirement is essential. While professional athletes may anticipate decades of retirement, regular Americans still need to fund an average 17 to 20 years of post-work life. That means socking away paychecks into appropriate retirement accounts and not using your nest egg to fund risky business ventures.
For Smith, the former football player, it's taken some trial and error to achieve a certain level of financial comfort. His advice to rookie sports pros with hefty contracts? "You don't have to spend it all," he says. "Let it sit, let the interest sit ... Keep reinvesting in yourself and your career."
Susannah Snider is the Personal Finance editor at U.S. News. Since 2010, she has reported on a wide range of personal finance topics, from consumer travel to college financial aid, student loans and employment. Snider previously worked as a staff writer at Kiplinger's Personal Finance magazine and holds a master's degree in journalism from the University of Southern California. She has appeared as a personal finance expert on television, radio and in print, including on "Fox & Friends," "The Tavis Smiley Show" and Fox Business News. You can follow her on Twitter or email her at firstname.lastname@example.org.