As you are probably following, Congress has increased the Child Tax Credit for 2021, and partial payments of the credit will be deposited into bank accounts starting this week. Eligible families will be receiving payments in the middle of each month from July through December. This extra money is a tremendous opportunity to make some smart money moves that will benefit your family for years into the future. So what should you do with this money? There’s no single right answer, but there are some general ideas that apply to most people. They’re the same general ideas that apply to any unexpected money. What does your plan say?
Let’s first address a big issue: Do you believe that this money is for the family, or for the child? That’s a personal question, but one that merits consideration. Personally, I believe that it is for the family as a whole, but I also believe that a financially strong family benefits children. I also believe that while this is family money, it isn’t family money for the parents to buy things for themselves. So, for me, I think it is fine to use it for things that benefit the family as a whole, not specifically the child, but not special things for the adults.
If You Are Behind On Your Bills, Get Caught Up
If you are behind on your bills, the obvious thing to do with this money is to get caught up on things you owe. That’s a great baseline for moving forward.
A little side note, though: If you are behind on bills, be sure you have a complete understanding of why you are behind on your bills, so you don’t fall right back into that same situation next month, or the month after. If you can’t figure it out, reach out to the personal financial counselor on your military installation to explore what’s going on.
Do Something Fun With Your Child
Even if you’re struggling, take a little bit of one of these checks to do something fun with your child. It doesn’t have to be expensive. Use your creativity to make an afternoon or day that meets your child’s age and interests. Go to the zoo and splurge on ice cream. See a movie in a fancy movie theater with those big comfy seats. (Be sure to ask if they offer a military discount!)
Pay Off Debt
Paying off debt now will benefit your entire family for years into the future. Not having that monthly payment, not paying interest, and generally having more financial flexibility is a great thing for a happy home life – and that’s ALWAYS good for kids.
Build An Emergency Fund And Specific Savings Funds
If you are still building your emergency fund, use this extra money to build it faster! An emergency fund is an essential part of your financial foundation – it is almost impossible to get ahead without one. If you are pretty comfortable with the level of your emergency fund, then put some money into other important specific savings funds. For my family, it might go into the school expenses fund, or the car replacement fund, or the health care expenses fun. If, miraculously, all those things had plenty of money, then maybe I’d go back to the “something fun” category and make that fun BIGGER.
Put It In Your Child’s College Savings Plan
Contribute to your children’s 529 plans (educational savings, or ABLE accounts for special needs kids). If you don’t like the idea of saving specifically for college, consider a regular, taxable savings or investing account. I don’t know anyone who is sad that they saved for their kids.
What NOT To Do With Your Child Tax Credit
There are two things that you probably shouldn’t do with the child tax credit payments. As mentioned before, I think it would be wrong to use this money to fund things that are specifically for the parents: a new purse for mom, new sneakers for Dad. Or whatever.
The other really important thing is that you don’t use this money to create more expenses into the future. For example, don’t buy a new car with a car loan because you have extra money each month right now. Unless the law changes, this is only happening through December – and then what? Or don’t buy a swimming pool for your backyard unless you have a plan for how to pay for the chemicals and extra water and maintenance next year and the year after that.
These extra payments are going to be an amazing opportunity for parents to improve their family’s financial situation. Be intentional and thoughtful about the best way for you to use these dollars without them getting sucked into your regular monthly spending. It will be a benefit that can pay off for years into the future. And that’s a happy thought!