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A game plan to help you take control of a financial windfall

In the midst of the 2015 NFL Draft, there is a great deal of money heading to rookie football players. Many of them will be experiencing the excitement of sudden wealth.

In 2014, for example, the NFL drafted more than 250 rookies who collectively signed contracts totaling more than $950 million—with 11 players receiving more than $10 million.

Football player being tackled
Bernhard Lang | The Image Bank | Getty Images

Of course, it's a mixed blessing. A sudden influx of wealth, plus increased notoriety, can quickly and dramatically change one's life. Oftentimes, people unaccustomed to great wealth are not prepared to manage their new financial realities.

There are countless examples of athletes who, after going pro, have engaged in unsustainable spending patterns. This lack of financial discipline, coupled with poor to nonexistent wealth-management planning, can unfortunately lead to severe financial consequences.

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Outlined below are some steps to safeguard, sustain and make the most of sudden wealth. These recommendations apply to any individual who is experiencing sudden wealth, whether it's a lottery winner or a person who just collected an inheritance.

1. Work with a good coach. Work hand-in-hand with a qualified financial advisor, preferably one with a fiduciary background, to develop and implement a wealth-management plan that integrates all factors of your financial life, including budgeting, asset protection, retirement, income tax and estate and insurance planning.

"To conquer the itch to spend, buy a few 'must-haves' and then return to more disciplined spending practices."

2. Set goals to put financial points on the board. Start by identifying your priorities and goals. This process will lead to a long-term budget that quantifies whether you have sufficient wealth to meet your goals. Keep in mind that a playing career will not last through retirement age, and thus, earnings need to last.

Athletes, in particular, should look ahead to retirement and consider the value of developing and maintaining a positive image and brand in the community during their playing years. Doing so not only allows them to have a positive impact on their community but can generate economic value from sponsorships and enhanced employment opportunities post-retirement.

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3. Factor in penalties. Factoring income taxes into the equation is critical when looking at future inflows. Projections need to be performed on an after-income-tax basis, and advisors can help minimize exposure in a prudent manner.

4. The best offense is strong (self) defense. To minimize the risk of frivolous spending, limit unrestricted access to funds. Work with an estate-planning attorney to evaluate the use of a domestic asset-protection trust, which will not only help control spending but can also provide protection from future creditors.

Resist the urge to overleverage yourself (i.e., borrow or purchase on credit). Instead, use cash to make priority purchases. With respect to spending, individuals often feel it helps to make one splurge purchase upon coming into newfound wealth. To conquer the itch to spend, buy a few "must-haves" and then return to more disciplined spending practices.

5. Have a game plan with your spouse. A prenuptial agreement for a spouse-to-be can be put in place for mutual understanding. For married couples, a post-nuptial agreement can be an effective tool to clarify joint and individual estate plans, as well as to protect both parties.

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6. Protect your blind side. Securing the proper insurance means having life, health, disability, property and casualty and liability insurance in place. Execute a comprehensive estate plan, which will include a will and, typically, a revocable trust, as well as powers of attorney, medical directives and guardianship appointments, as appropriate.

The plan should also address your goals, where applicable, of passing wealth efficiently to family members and future generations.

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7. Have a diversified playbook. From an investment standpoint, build a diversified and cost- and tax-efficient portfolio. It should include a "bond runway," which is a short-duration, high-yield fixed-income portfolio to meet identified outflows and lifestyle spending and defend against economic downturns.

8. Pick the right teammates. Newly signed athletes are instantly thrust into a world of opportunities and challenges. They become targets of people trying to make money off them, as well as well-intentioned family members and friends who don't understand the financial uncertainty that lies ahead.

Work with an advisor to prioritize objectives, and ideally, move slowly and deliberately before making any dramatic lifestyle changes.

—By John Voltaggio, managing director and senior wealth advisor at Northern Trust.