Thinking about buying a Powerball ticket? Here are 5 better ways to spend your money.
The Powerball jackpot has climbed to an estimated $1.4 billion, which marks the third-largest prize in Powerball's history, per USA Today. While that might seem like a tempting amount of money to take a chance on winning, the odds of doing so aren't great. According to Nerdwallet, "the odds of picking all six numbers correctly are about 1 in 292 million." And if you did end up winning, about 24% of your winnings would be withheld for taxes.
In short, even if buying a lottery ticket doesn't cost you a fortune, there are still much better ways to spend your money.
Pay down high-interest debt
Given the unlikely odds of winning the lottery, it's a better bet to put that money toward paying down high-interest debt like credit card debt. As Kiplinger pointed out, "paying off a balance with a 13% interest rate is like earning 13% on your investments — an incredibly valuable use of the money."
Even if it doesn't feel like you're putting much towards your debt, every little bit counts, as it will add up over time. "Let's say you owe $500," The Ascent conceptualized. "If you pay $25 each month toward that debt, our credit card payoff calculator shows that you could pay it off in 25 months."
Stash your funds in a high-yield savings account
Better yet, stash the cash you would’ve used for a lottery ticket in a high-yield savings account. Particularly in a favorable rate environment, these accounts can offer 4.5% to 5% interest.
While that may not sound as nice as a billion-dollar lottery win, it's a surefire bet. As CNN illustrated, if you were to "spend $35 a week on lottery tickets ($1,820 a year)," you're "out $1,720" in the end, even if you won $100 throughout the year. On the other hand, "if you had banked that $1,820 at 5%, you'd have more than $1,900 on hand instead."
Add the money to your retirement fund
Beyond high-yield savings accounts, another way to save the money you would've spent on the lotto is by placing it in a tax-advantaged retirement fund, like a 401(k) or IRA. Especially thanks to the possibility of employer matches and the power of compound interest, extra contributions can really add up over time. For instance, instead of spending $20 a week on lottery tickets (around $1,040 per year), you could "effectively triple your money in 20 years" by putting that money into a 401(k), according to Kiplinger's calculations. And that's without even taking an employer match into account.
Make an extra payment toward your mortgage
Another alternative is to make an extra payment toward your mortgage. As Brian Rellihan, CFP(r), MBA, EA, senior financial adviser with Wise Wealth Partners, told GoBankingRates, "every extra payment toward the principle is a risk-free rate of return equal to the mortgage rate you are being charged," as well as a way of "increasing the equity you have in your home."
To break that out into numbers, "if you pay an extra $320 per year toward a $300,000, 30-year mortgage with a 4% interest rate, you can shave off one year of payments and save $8,238.97 in interest," per GoBankingRate.
Put your money in a 'fun fund'
When you dream of winning the lottery, it's likely you're thinking about more than just paying down debt and topping off your retirement fund. You’re probably looking to have some fun, as well, which brings up another option: Save the money you would've spent on lottery tickets to go do something fun.
"Simply enjoy the money. Put it in a 'fun' fund. To go out to a fancy dinner or go on a vacation," personal finance educator Tiffany Aliche, founder of TheBudgetnista.com and the Live Richer Academy, told CNN.
