Less than the median U.S. household income, according to the Federal Reserve.
For NBA legend Shaquille O’Neal, it was like he had a wish list ready to go before he even received the money in his bank account.
Don’t miss
On the Earn Your Leisure financial literacy podcast, Shaq discussed how he blew through his bank account buying luxuries because he didn’t realize a portion of his income was set aside for taxes.
He couldn’t believe the FICA tax withholding. He thought they had taken around two hundred thousand dollars!
This experience profoundly impacted Shaq’s viewpoint on accumulating wealth and managing finances.
Money blindspots
Financial management practices that people and families use to plan, assess, and keep track of their financial activities.
In other words, people categorize different sources of income and designate funds for specific spending purposes.
Receiving a large sum of money unexpectedly can sometimes lead to poor financial decisions, including “the windfall effect” where a sudden influx of cash is not handled with the same seriousness as regular income.
This unexpected gain might be why Shaq spent his seven-figure paycheck sooner than he had planned.
He remembered the agent calling him and saying, “Hey, I got a check for a million.” It was no surprise to him; he had already picked out that black Mercedes.
After buying the expensive car for $150,000, Shaq was convinced to purchase two more – one for each of his parents. He also made additional purchases, including jewelry and suits, that day.
Shaq’s mental calculations led him to think he had a lot of money left over. “I get a call from the bank manager and he says, ‘You withdrew a million dollars,’ and I said, ‘No, I didn’t.’”
After reviewing his pay stub, Shaq discovered that a substantial portion of his paycheck had been deducted for federal income taxes under the Federal Insurance Contributions Act, commonly known as FICA.
I had not a clue about FICA and income tax and sales tax,” he admitted. “So then I said, ‘Alright, I don’t want to be like all the other NBA players, I’ve got to teach myself.’
He went on his shopping spree, but did you know that in 2024, FICA taxes are broken down to 15.3% of your earnings – 7.65% is taken from your paycheck, while your employer covers the remaining 7.65%. As an independent worker, you’re responsible for paying the entire 15.3% yourself.
With this new outlook, Shaq carefully saved his earnings, made smart investments in various business opportunities and built a net worth of around $500 million, according to CelebrityNetWorth.
A similar change in mindset could also benefit the average people who save and invest.
(it’s 100% free)
Better budgeting
in place.
Without a clear budget plan, many people often resort to mental arithmetic when trying to keep track of their expenses.
For example, 67% of taxpayers expect to get a tax refund in 2024, and almost 30% of them are thinking about using that money for things like vacations, home improvements, and unexpected shopping treats, says Bankrate.
This could lead to a number of Americans splurging on luxury items they otherwise may not have afforded, rather than allocating that money for savings or investments.
By thinking ahead, you can manage your finances more effectively and prepare for any sudden opportunities or financial hurdles that may come your way.
I can help you optimize further by assisting you in filing your taxes sooner, estimating how much you’ll owe (or get back), and determining where you can invest excess funds from various sources to reach your financial goals as early as possible.
When it comes to long-term financial planning, ditch the manual calculations and fire up a spreadsheet instead.
Update — August 16, 2024: This story now clarifies that it’s unclear exactly how much Shaquille O’Neal lost through FICA taxes alone.
What to read next
The information in this article is for general purposes only and is not intended as a substitute for advice. It is provided as-is, without any guarantee or warranty of any kind.
