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Don’t Go Broke Like These Footballers!

Football is one of the most popular and beloved sports in the world, and in Singapore.  Passion for it runs high, and we frequently hear cheers and yells take over a housing estate whenever there is a football match going on. Professional footballers are often admired as heroes as people from all ages (me included) look up to the likes of David Beckham, Lionel Messi, and Cristiano Ronaldo. Besides admiration for their sporting talents, their massive salaries are also the envy of most – the thought of pocketing tens of thousands of Euros every week sounds thrilling to me.

However, the sad thing is, from a statistical viewpoint, many footballers end up bankrupt after the end of their sporting careers. In an astonishing article on ESPN Soccernet – owned by Disney (NYSE: DIS), the house of Mickey Mouse and Disneyland – research done by XPro showed that three out of five former players are either bankrupt or in serious financial trouble within 5 years. And these players earn an average of £30,000 or S$56,000 a week! That’s about the amount an average Singaporean can earn in a whole year!

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According to the experts cited in the article, the main sources of these footballers’ problems were a lack of basic financial literacy and over-reliance on one source of income. If it could happen to highly paid footballers, it can happen to you.

Financial literacy is a subject rarely taught in our schools. Compound interest, powerful when it’s working on our side in our investing activities, becomes downright destructive when it works against us. Credit card debt compounds at a rate of up to 25% per annum (for debtees holding credit card debt from Overseas-Chinese Banking Corporation (SGX: O39)). At such interest rates, a $10,000 debt will balloon to $30,517 within 5 years!

According to Mr Kuo How Nam, President of Credit Counselling Singapore, credit card rollover debt is now almost $5b. The rollover debt is the amount of debt that’s not paid off, but ‘rolled-over’ onto the next few months by debtees who pay only the interest on the debt. With better awareness, situations like credit card debt could easily be avoided.

I don’t think it will be a stretch to say that most employees depend on their pay check for the bulk of their income, a similar situation to professional footballers (of course, they earn much more than a regular Singaporean, but you get what I mean). But what happens when the primary source of income’s taken away? There would be a drastic or total cut in income, and the individual’s savings would have to be deployed. The problem is compounded if these savings have been sitting idly in bank deposits earning next to nothing while inflation steadily erodes the purchasing power of cash. The footballers who were earning millions one year, were earning nothing when their sporting careers ended. They were unable to keep up with the standard of living that they were used to once their main source of income dried up. While most of us don’t need to live like millionaires or even the same way we did when we were earning a full salary after retirement, we still want to maintain a basic standard of living.  Your savings are decreasing in value sitting in the bank, and to many of us, purely living off the CPF just isn’t enough. There is a need to invest; a need to build another source of income.

At the Motley Fool, we believe in investing in shares of individual companies as it allows investors to profit from both dividends as well as capital appreciation to build substantial long-term wealth. In fact, according to Yahoo Finance, blue-chip shares like Sembcorp Industries (SGX: U96) and Jardine Cycle & Carriage (SGX: C07) have generated massive returns (inclusive of dividends) of 750% and 1700% respectively since Jan 2003. Such returns can provide the bed-rock for long-term wealth.

And if you find investing in individual companies to be too heart-stopping, an index ETF such as the SPDR Straits Times Index ETF (SGX: ES3) can also provide decent returns by tracking the overall return of the stock market as measured by the Straits Times Index (SGX: ^STI). The SPDR STI ETF has returned 9.27% per annum on a compounded basis since Apr 2002 – well ahead of Singapore’s long-term-average inflation rate of 2.82% and thus help increase the purchasing power of your cash.

If you are interested in learning how to GROW your wealth in the years ahead, sign up for your FREE subscription to Take Stock Singapore, The Motley Fool’s free investing newsletter. Written by David KuoTake Stock Singapore tells you exactly what’s happening in today’s markets, and shows how you can GROW your wealth in the years ahead. The Motley Fool’s purpose is to help the world invest, better.

The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore Contributor Chong Ser Jing doesn’t own shares in any companies mentioned.