Why Inconsistent Income Needs Consistent Planning

Klay Thompson, an All-Star basketball player, helped lead the Golden State Warriors to their fourth NBA finals, which continue this weekend.

Chris Levinson, an accomplished Hollywood writer whose credits include “Dawson’s Creek” and “Law & Order,” recently sold two television series, one to Bravo and the other to Hulu.

Both of their careers are going well, and they’re being paid handsomely. But nothing is certain.

Thompson has been making millions of dollars a year since he was drafted in 2011 at age 21, including $18 million this season before any playing bonuses or endorsements. But at 28, he knows that one bad injury could end his career.

A few years back, Levinson sold a promising show to Amazon. But then the head of Amazon Studios, Roy Price, resigned amid sexual harassment complaints, and that was the end of her show. A writer can make between $50,000 and $350,000 for a pilot, with a more experienced writer like Levinson at the higher end of the range.

Professional athletes, Hollywood players, even tech entrepreneurs whose company rises to a billion-dollar valuation would not seem to need wealth planning.

They are life’s lottery winners. If they win big enough, they’re likely to stay rich no matter what happens. But if their win is smaller, there are abundant cautionary tales about how quickly millions of dollars can disappear with little to show for it. Antoine Walker, once a first-round draft pick and an NBA champion with the Miami Heat, made $108 million in his playing career and lost almost all of it before filing for bankruptcy protection in 2010.

What these stars share with many others is an inconsistent income. It comes in bulk early in their career or later in chunks that are unpredictable.

“Right now, it’s easy to relax,” Thompson said in an interview between postseason games. “I’m in the prime of my career. Checks are coming in constantly, so the cash flow is great.”

But he knows it’s not forever. “I’m in my seventh year,” he said, “but I’ll be done in another seven years. I’ll have a whole life to live with this wealth.”

Joe McLean, managing partner of Intersect Capital in San Ramon, California, and a former professional basketball player in Europe, has drafted a list of 50 reasons that professional athletes and entrepreneurs stay wealthy.

Some are obvious, including the No. 1 reason: “They pay themselves first.” Many are humorous, like No. 26: “They buy the right watch, not the bright watch.”

But others are meant to make you think about the wealth you have, however it was accumulated. The No. 5 reason: “They know the difference between someone that makes a lot of money and someone that is wealthy.” No. 40: “They know the next generation is watching.” No. 49: “Their money is patient.”

Even though most athletes make the bulk of their fortune in their 20s, McLean said, the list applies to all of his clients who had great success taking risks but whose rewards came inconsistently. This is a group that has already excelled beyond expectations, so it doesn’t think it will make the bad financial decisions others make.

“What I realized is, you cannot scare the one-in-a-million guy who already beat the odds,” he said. “You can’t give them the stats about athletes going broke, because they say, ‘That’s not going to be me.’ Everyone already told them they weren’t going to make it.”

Instead, McLean talks to them about money basics to shore up their finances: paying off debt, paying attention to their credit score, knowing whom they should help and trust and whom they shouldn’t.

Levinson, who is married to a novelist and has two children, is a client of McLean’s. She said the impetus for her to think more deeply about her finances was the death of her mother two years ago. Her father, Richard Levinson, a television writer who became a co-creator of shows like “Columbo” and “Murder, She Wrote,” died when she was a teenager.

“The security that is parents went away,” she said. And it left her asking: “How do I protect what my parents left me, and how do I plan responsibly?”

Levinson said she wanted to know how to plan for the money she would be earning.

“I work in an industry that fluctuates month to month,” she said. “I’ve worked steadily for 20 years, but things change. Let’s say I’m not passionate about something for a while. Do we have enough in the coffer so I never have to take a job out of necessity?”

She has a financial cushion, but she said she did not want to whittle it down and be stuck later on — or not be able to provide for her children the way her parents provided for her.

“I want to make sure I’m not foolishly spending in one direction at the expense of another,” Levinson said. “I also worry that the first thing to go is joy, which is travel. That’s the stuff that is so easy to cut, but it’s essential” for work.

Her strategy is to take certain tempting but risky investments off the table. “If you can drink it, drive it, eat it or wear it, you probably shouldn’t invest in it,” she said McLean had told her. At the same time, Levinson has started to think of her financial decisions as pros and cons, not yes-or-no decisions. For instance, she almost invested in a restaurant but decided against it because she had other financial commitments that outweighed the investment.

For people starting their career, the choices are more pressing.

Carlos Ortiz, a professional golfer who has bounced between the developmental Web.com Tour and the PGA Tour, said that after a stellar first year in 2014, when he won $600,000, he did not want to squander his winnings.

“For me, it was a lot of money,” he said. “I didn’t know what to do with it. I still had it in my student account. I didn’t even have a credit card.”

Ortiz said he had learned to prioritize what he needed over what he wanted. One priority was a house in Dallas to be his home base, and he made sure he bought one he could afford. Another was being modest with flashy expenses, like cars and watches.

“In some years, you make a lot of money and can’t spend it,” he said. “In other years, you’re losing money.”

Golfers are more like freelance workers than star basketball players: If they don’t have lucrative endorsements, their income is solely what they earn on the course, minus all their expenses.

Ortiz's first three years were great, and he made it onto the PGA Tour. But when he did not win enough money, he lost his playing privileges and went back to the less-lucrative developmental tour, which he said offered winnings that were about a tenth what they were on the PGA Tour.

Now, he said, he is concentrating on saving, having enough insurance and being prepared for the financial demands of being a new father. “If you’re short of money, it puts a lot of extra pressure on your game,” he said.

Yet extra money can exert a different pressure. Thompson’s salary information is available on the internet, which he said had elicited a slew of financial pitches. So he learned to use his adviser as a shield, funneling all the solicitations to him for vetting.

It comes from a sense of understanding his strengths and weaknesses. “I know basketball,” Thompson said. “I’m trying to learn more about the business world.”

McLean shares a saying to get his clients to the point of managing their money better: “With great abundance comes less discipline.”

It sounds like a mangled proverb, but McLean said it was meant to show his most successful clients that they needed to pay attention to their money the way they focused on the skills that had made them rich.

“The wealthy were disciplined enough to make the money,” he said, “but they don’t always have a plan to maintain it.”