How To Deal With An Income Spike
What You Need To Do When You Get An Increase In Salary
You may or may not have heard the new contract Bryce Harper signed with the Philadelphia Phillies. 13 years for $330 Million dollars. He essentially hit the lottery. He signed the largest sports contract in history. Obviously Bryce Harper is a once in a generation talent but there are many professional athletes that will see an increase in salaries due to the stellar play.
An income spike is where you get a significant raise or new contract that is greater than your previous contract. With an income spike, you may get a false sense of security if you aren’t frugal and careful with your money. Now lets be honest and admit, it will be extremely difficult if you are Bryce Harper but say you are playing on a rookie contract and go from low six figures to a seven figure contract? In most cases, we would be on an immediate high because we, the professional athletes, have been rewarded for the work put in.
However, there is no value add to getting an income spike if you just spend it away. The wealthy stay wealthy because they are able to make more money while keeping their expenses low. It’s tough though being in your 20s and 30s making boat loads of money to have the frugal mindset to handle an income spike. More Money More Problems as Biggies said…
As a professional athlete you have the ability to set yourself up for the rest of your life if you are smart with your income spikes and career. If you are able to make it to that second or third contract (…the average is only from 3-5 years) you can have the head start you need. These are a couple ways to deal with an income spike so you don’t come into financial troubles after what’s suppose to be a positive.
Pay Down Any Debts
The quickest way to build wealth is to not to owe anyone money. When you can simply make money and not have any existing payments, like a mortgage or car payments or any other loans, you can use the money strictly for growth. Obviously you have to be aware of your situation and if it doesn’t make sense to pay off something right off the back then you should approach the situation differently. Which leads us to our next point….
Adjust Your Plan
Now that you are in a different tax bracket how are you going to adjust your plan. Will you make modifications to your budget? Does your investment strategy stay the same? Are you going to support your family differently? These are all questions that need to be answered because they will come. It’s better to be prepared before the storm comes than after.
Make One Big Purchase….
What’s often confused with being frugal is that you can’t enjoy the finer things in life. That is not the case as long as you are economical about it. Being relative to your own situation, it is okay to splurge on one thing that you may have had your eye on. After that, it is paramount to keep your expenses the same or minimal increase because when you are able to expand the gap between assets vs liabilities, that’s when wealth increases and when being a frugal athlete gets rightfully rewarded.