Posted by Lending Club :: January 11, 2009 @ 6:46 am

To show the effects of lifestyle decisions on the state of your personal finances, I’d like to discuss two people I know who had many of the same opportunities. Both were excellent baseball players whom I played against in Little League and high school.

Both players were drafted by professional teams in the mid-1990s and received signing bonuses of about $300,000. The first player, Bob (names changed), handed the money over to his father to manage his finances for him. The second player, Dave, decided to manage the money himself. Bob’s father, a banker, allowed Bob to spend a small portion of the bonus on a new car and invested the rest. Dave showed no such restraint and started living the life of a high-profile player.

Bob’s salary started at $250,000 and went as high as $800,000 during his 7 years in and out of the major leagues. Dave’s salary and tenure were in the same range. Though neither player was a star, both had respectable professional careers and lasted longer than many other prospects, who often see little time in the majors.

Bob’s conservative spending and heavy investing has left him with more than enough money to continue his spending habits for the rest of his lifetime. Dave, on the other hand, basically lived from gigantic paycheck to gigantic paycheck during his entire career. As a result, he has two strikes against him. Not only is he used to spending considerably more than Bob, but he also has little in the way of savings to live off of, now that his career is winding down. Dave never was a great two-strike hitter and I fear that he will have trouble in his current financial situation as well.

You might have little sympathy for people making many hundreds of thousands of dollars per year, but remember that careers in professional sports are often limited to just a few years. By forgoing college to pursue their careers, many players must rely on their career earnings to provide for a lifetime’s worth of expenses. Players do receive retirement medical benefits with just one day of service and a pension with 43 days of service. According to Cash Money Life, the minimum a player, eligible for a pension, will receive is $1,000/mo, and it maxes out at $180,000 for players with 10+ years of service time. Pensions begin at age 62.

It isn’t just the opportunities that we are presented with in life that dictate our finances; it’s also what we do with them. It would be easy to assume that someone playing professional baseball at the highest level would have few financial concerns. In reality, the rule that it’s cash flow, not income that dictates financial success holds true in all cases. Those with short careers should try to live not only within their means, but also to spend like someone making the equivalent amount of career earnings over a full lifetime of work. If you work half as long for twice the money as someone else, your spending should be roughly the same if you want to achieve similar results. Saving large amounts throughout a short career would almost certainly increase your chances of success.