By now, you may have heard about the child tax credit money that most parents may be able to get. Starting July 15, eligible households with a joint income of less than $150,000 might have qualified to receive up to $300 per month for children under the age of 6 and up to $250 per month for children ages 6 to 17.
Did you already receive your money? If so, you may be wondering what to do with it.
Understanding the Advance Child Tax Credit
As part of the American Rescue Plan signed by President Joe Biden back in March, parents can receive an advance on part of their child tax credit in monthly installments. If you don’t wish to receive these monthly payments, you can always opt out.
Of course, there are several reasons to opt out and you should definitely consider talking to your tax professional or a financial advisor for advice on what you should do for your specific situation. However, this particular article is directed toward the people who didn’t opt-out of receiving the monthly payments and either just received their first payment or will get one soon. Here are 6 things to do with your child tax credit money if you’re receiving it.
1. Provide For Your Child
This is the most obvious purpose for the child tax credit monthly payments. Parents are expected to provide for their children no matter what. However, if you’re still trying to bounce back after the negative financial effects of the pandemic, you could likely put this extra money to good use.
This money could be used to help buy clothes and shoes for your child, pay for childcare, or cover any of their other immediate needs. If you’ve had to put a few things off in the past year due to lack of finances, these advance monthly payments can help you get back on track.
2. Catch Up on Bills
Speaking of getting back on track financially, the child tax credit money can also best used to help you catch up on bills or pay on some of your debt. Being behind on bills can lead to lots of stress and overwhelm.
As you try to get back on your feet, you don’t need to worry about the threat of late fees, utilities getting shut off, or accounts going to collections. While the monthly payments aren’t a lot, they could be used to help keep you afloat and help you pay down balances.
If you usually your tax refund to pay down bills and debt anyway, these monthly payments could just help you do it sooner and potentially save money in interest.
RELATED: 7 Simple Ways to Lower Your Bills
3. Contribute to Your Child’s College Fund
Have you been saying that you’re going to start saving for your child’s college fund for a while now? If you haven’t made any progress yet, you’re not alone. It can be challenging to set aside money for college expenses in the future when you’re also focusing on current needs and goals.
However, the monthly child tax credits can make it easier for you to commit to saving for college. It’s no secret that students who have some college savings are more likely to continue with their education and graduate.
The cost of higher education is also increasing each year due to inflation and other factors. Consider contributing to a 529 Plan for your child to help pay for their college or vocational school. 529 Plans also have many different tax benefits and can help your money grow faster so your child will have a nice chunk of funds to use for tuition.
4. Add To Your Home Maintenance Fund
If you’re a homeowner, you know that there are always unexpected repairs that come up as well as maintenance responsibilities. Another good plan for your monthly checks is to build up your home maintenance fund.
Your home is a very important asset to your family as it provides them with a safe place to stay. It’s important to save at least 1% to 3% of your home’s value for repairs and maintenance each year since that’s the estimated amount most people will spend. To avoid going into debt over necessary purchases for your home, you can use this money to prepare for those future costs instead.
5. Save It
Of course, you can always use this money to build your emergency fund and other sinking funds as well. If there’s anything that the past year has taught us, it’s that saving only $1,000 for emergencies is not enough.
You need at least 3 to 6 months of expenses safely tucked away in a high-yield savings account. That’s the absolute minimum amount. The advanced child tax credit payments can help you get a nice jumpstart to building a solid emergency fund.
6. Start a Side Business
Maybe you’d have a good idea for a small side business but never had the money on hand to cash flow the venture. These new monthly payments could provide you with a little capital to diversify your income with a side business.
If you choose to start an online business or be a solopreneur where you do most of the work yourself, you won’t spend nearly as much in start-up costs. Plus, you’ll be investing in something that can generate more income for your family over time.
Spend the Money Wisely Now, or Get a Big Lump Sum Later
If you’re a parent who qualifies for the advance tax credit payments, you really have two main options. You can either accept the monthly checks and use the money wisely now. You could also get a lump sum payment when you file your taxes.
Be sure to talk to a tax professional to see if you could possibly owe more taxes when you file and consider how you’ll prepare for that. But, if you can see the monthly checks benefiting you now. Be sure to make a clear plan for this money ahead of time and stick to your plan. Or, if you’re afraid you might not use the money wisely. You can opt out and possibly receive a bigger tax refund to use next year.
Personally, I don’t see anything wrong with putting some of the money to good use now. Waiting to get a big tax refund each spring is basically like giving the government an interest-free loan. It’s money that you’re entitled to anyway so it could be best spent earning interest for you. Being invested into a profitable business idea, or helping you save interest on existing debt.
Either way, the decision is ultimately yours to make.