3 Better Investments Than Powerball

Buying Powerball and Mega Millions tickets is no substitute for sound financial planning.

The odds of winning the lottery are astronomically long. Yet, the allure of pocketing hundreds of millions of dollars can tempt even the staunchest penny pincher. While there's no harm in playing your lucky numbers every now and again, coming down with a serious case of lottery fever can prove costly.

Consider this: A $20-a-week lottery habit adds up to $1,040 over the course of a year. Suddenly, we're talking real money. Here are three better ways to use that cash than buying lottery tickets.

Contribute to a 401(k)

Why not contribute to your retirement savings account at work, instead? If you have an extra $1,040 to spare, then put that money to work for you in your retirement account. Investing an extra $86.67 a month (which is what $1,040 breaks down to over 12 months) in a 401(k) over 20 years costs you $20,801, but after two decades the account balance will be $49,632, assuming an 8% annual return and a 25% tax bracket. If your company matches 401(k) contributions, as many do, the balance will grow even faster.

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Open a Roth IRA

If you’re already maxing out your retirement account at work, then open a Roth IRA. By investing $1,040 in a fund that earns a 7% annual return, in 30 years you’ll have nearly $106,000. And you can withdraw your earnings tax-free after you turn 59 1/2.

Make an extra mortgage payment

Lastly, consider increasing your mortgage payments. Say, you’ve got a $200,000 mortgage at 4% over 30 years. That works out to a monthly payment of $955 excluding taxes and insurance. You’ll pay about $144,000 in interest alone over the term of the mortgage. By paying an extra $1,040 a year, you’ll save almost $24,000 in interest and retire your loan four years early.

Check out 14 more smart ways to spend or invest $1,000.

Andrea Browne Taylor
Contributing Editor

Browne Taylor joined Kiplinger in 2011 and was a channel editor for Kiplinger.com covering living and family finance topics. She previously worked at the Washington Post as a Web producer in the Style section and prior to that covered the Jobs, Cars and Real Estate sections. She earned a BA in journalism from Howard University in Washington, D.C. She is Director of Member Services, at the National Association of Home Builders.