Playbook: Controlling Your Burn Rate When It Comes to Expenses
During this Frugal Athlete process I’ve talked with countless financial advisors, people involved in the sports business sector, and athletes at all levels. The one thing that has been a constant in conversations is the concept of controlling your burn rate.
What is your burn rate exactly?… Well your burn rate is the rate at which you spend money in excess of income. Essentially your burn rate is what you are spending your money on. That could be anything from your mortgage to clothes to food to bills to vacations, anything.
As one individual said to me, “ the biggest problem with athletes is identifying how to control their burn rate...”
As athletes it can be hard to control your burn rate. You are young and have the money to spend. The minimum salary in the top 4 major leagues (NBA, NFL, MLB, NHL) is over 400,000 dollars. You aren’t ready to think about long term issues when you can have everything right now. As an athlete making that much money you aren't necessarily thinking about expenses. I don't blame you; but, would you rather have good money forever or great money for a couple years? This can be easily managed just by controlling your burn rate.
Your burn rate now can affect how you live when you’re done playing.
To understand burn rate a little bit more take this scenario:
Say you signed a 1 year contract for 1 million dollars. Keep in mind we aren’t considering taxes or net income. Your burn rate is 200,000 dollars for all your expenses per year. It will take only 5 years for your burn rate to catch up to what you earned in that one year. If you keep your burn rate consistent, what income will you live off of if you don’t get another contract. Say you decided to plan like Ryan Broles and live off only 60,000 dollars per year and control your burn rate, think how much longer your money will last for you. That 60,000 per year burn rate would last almost 17 years. A difference of over 10 years, once you include possible investment strategies you could have done, controlling your burn rate could really make all the difference.
By controlling your burn rate you are able to control your life and as an athlete if you can take the time to look over your spending habits you will be better for it in the long run.