Two bucks may not seem like a lot for a chance at winning millions or even a billion dollars. Discover some better ways to turn small sums into serious wealth.
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The temptation to buy a Powerball ticket is understandable, especially when there’s over $1 billion up for grabs. That kind of money would be transformative for most Americans. Which makes the idea of spending $2 — less than the cost of a take-out coffee — for a chance of hitting the jackpot beyond attractive.
The trouble is that we’re not just talking about $2. If you buy a Powerball ticket for every draw, it would cost you about $6 a week. That comes to around $310 a year, and it’s even more if you pay extra for the Power Play.
Plus, the chances of winning are very slim. That means there’s a good chance you’ll wind up with nothing to show for that $2. The Powerball site puts the chances of winning the grand prize at around 1 in 290 million. According to Forbes’ calculations, you should win something 4% of the time. But that something could be a $4 prize, which won’t even cover a week of ticket costs.
Here are four other ways to spend that money that could build wealth, happiness, or both.
1. Put it in a high-yield savings account
Right now, the top high-yield savings accounts are paying 4% or more in interest. Unlike buying a lottery ticket, money in the bank won’t disappear if you don’t win. Quite the opposite, in fact — most bank accounts are insured against bank failure, making them pretty safe spaces to park your cash.
There’s a limit to how much money you need to keep in savings. But if you don’t have any cash put aside to cushion you against the unexpected, even $6 a week could make a difference. Many financial experts advise having three to six months’ worth of living expenses in an emergency fund, which may seem an impossible goal. If you can steadily save a small amount each week or month, you’ll get there eventually.
2. Invest it for the future
Having money in a savings account can give you peace of mind, but if you want to build wealth, the trick is to find ways to make that money work for you. For example, you might buy stocks or other assets that will generate returns. There are no guarantees, but historically the stock market has helped people build wealth over time.
The S&P 500 is often used as a benchmark for stock market performance, and over the past 30 years, it has delivered a compound average annual growth rate of over 10%. Bear in mind that there will be some years when equities lose value, and some when they gain more than average. And that 10% figure is before inflation. It’s important to only invest money that you won’t need in the coming few years, so that you can wait out any market dips.
If you invest money instead of buying Powerball tickets, and then leave it alone, it will start to compound. Compound interest is essentially earning interest on your interest. Over time, it is a more reliable way to build wealth than hoping to win the lottery. Let’s say you invest $25 a month and are able to earn average returns of 8%. Here’s how that might add up over time.
Time period Value of assets (approx.) 5 years $1,760 10 years $4,345 20 years $13,730 30 years $33,985
Data source: Author calculations
3. Pay off high-interest debt
If you carry a balance on your credit card, paying it down is a reliable way to improve your financial situation. Unless you’re using a 0% intro APR credit card, the interest can compound in the same way the assets did in the table above. Only in the case of debt, it can accrue faster and it will work against you rather than for you.
The difficulty is that, depending on how much you owe, becoming debt free can seem like an impossible task. Buying a lottery ticket may seem like an easier solution, if it wasn’t such a long shot. Instead, make a debt repayment plan and put the money you would have spent on lottery tickets toward your balance. If you can pay more, so much the better.
The average credit card interest is around 20%. Let’s say you owe $500. If you pay $25 each month toward that debt, our credit card payoff calculator shows that you could pay it off in 25 months. You’d still pay over $100 in interest, but you’d pay a lot more if you only made minimum payments on that debt.
4. Do something fun
Some people enjoy the thrill of buying a lottery ticket and may think that $2 is worth it for the excitement. Depending on what floats your boat, that lottery ticket money could pay for a less fleeting form of entertainment. True, high living costs mean $310 over a year doesn’t go that far. But it could pay for a couple of nights in a hotel or some nice meals out. It would certainly fund a couple of movie nights or cover a class to learn a new skill.
Bottom line
The attraction of possibly winning millions of dollars or more from a $2 powerball ticket is clear. The thing is that there are much more reliable ways to build wealth. According to a study by Ramsey Solutions, 75% of millionaires put their success down to investing consistently over time. Why not use your lottery ticket money to follow in their footsteps?
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