When I heard that three-time Superbowl Champion, Rob Gronkowski, was retiring at the ripe old age of 29, I have to admit I immediately thought Gronk was headed for financial trouble.
Much like lottery winners or Eagleford royalty owners, professional athletes are famous for making a lot of money very quickly. For many, this brings a big splash with an over-the-top lifestyle….and then the inevitable downturn and running out of money.
According to Mint.com, most professional athletes earn more in one or two seasons than most of us make during an entire lifetime. Despite this, nearly 80% of NFL players file for bankruptcy within five years of retirement. The ESPN documentary titled “Broke” offers a fascinating insight into the dynamics of this world.
At six foot six and 270 pounds, Gronk is hard to miss. He is the life of the party with a huge grin on his face. However, he is incredibly pragmatic when it comes to managing his money. This is one of the key reasons he stands a good chance of walking away from the game without financial worries.
Despite playing at the highest level in the NFL, Gronk saved all his paychecks. Instead, he opted to live off his endorsement deals. Even then, he has been remarkable modest.
What forms the Gronk mindset and how does this help the average person?
Gronkowski grew up in a modest family of boys. As such, he received lots of hand-me-downs as a kid. Whether it was hockey gear or clothes, most of his attire had been worn before. Even today, Gronk says he’ll wear the same jeans until they are falling apart.
We know more and more families that shop at thrift stores, especially in wealthier neighborhoods. One father gave his daughter $200 to buy a prom dress. When the daughter found one at a thrift store for $50, the father let her keep the difference if she invested it. The daughter was thrilled. No knew it was a “used” dress and she had now increased her college fund by $150.
Athletes are at risk for being traded quite unexpectedly. And yet they often burden themselves with a massive house and entourage. If funding a huge house, a big boat, etc. and suddenly no longer live in that town, you are faced with having to support multiple households.
People lose their jobs or get transferred all the time. There are far more buyers for an average home than a trophy home. Additionally, the holding costs of insurance, property tax, utilities and maintenance are all lower with an average home.
We often hear people say, “I can always sell my house.” That may be generally true, but it takes time. And if you don’t have time, you’ll end up sacrificing full market pricing. That can turn a trophy home into a boat anchor.
Many athletes have a fleet of automobiles. You want a Mercedes S Class? The sticker can easily run $145,000. However, a 5-year-old S Class has very similar styling but sells for $40,000. Again, just like buying clothes at a thrift store, carefully acquiring used vehicles can save you a bundle and still let you roll in comfort and style.
Gronk knows there is a high risk of outliving his money. At age 29, the former star knows his earnings must last another sixty years. He also knows life spans are increasing. That moving target is fine if you’ve got the cash. However, it can be rather painful if you age without resources.
As such, being conservative now allows his nest-egg to provide for decades to come.
Having a high income makes you a target for “can’t miss” investment schemes. If you don’t understand it, don’t do it. Gronk advises younger teammates to “Keep it simple.” It also helps to do your homework. In the process, don’t over estimate your abilities. There is nothing wrong with saying “I don’t know.”
It is highly unlikely that most of us will be able to retire before age 30. However, the Gronk lifestyle offers many valuable lessons for the average person.
Save for a rainy day. Live well below your means. Buy used stuff. Don’t stick all your money into illiquid assets. Keep it simple.