Are you one of the millions of families who will start receiving direct child tax payments from the U.S. Government this July 15th? This exciting new benefit is projected to lift millions of children out of poverty and provide much-needed breathing space to many families raising young children.
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I am one of those parents who will be receiving the new child tax credit for my children.
You have the option to opt out of receiving the monthly payments, and you can get a lump sum when you file taxes instead. While millions of parents will be using these desperately needed payments to pay for basic necessities, many others can choose the best way to spend their money.
Why not use those cash payments in a way to help your children and their future?
Here are some ways you can use that money from the child tax credit to improve your and your children’s financial future.
10 Ways to Use the Child Tax Credit to Help Your Children
1. Pay Off Debt
Having consumer debt holds you back from moving forward. It can be hard to future-facing when you are held back by large amounts of debt. Paying off debt is one of the biggest and best ways to help improve your financial future and ensure financial stability. Kids will benefit from their parents having a stable financial situation. If you have large am9utns of debt, particularly if the loans are predatory or causing a lot of stress, your priority should be paying these off.
2. Add Money to Your HSA (if you are eligible)
Do you have access to an HSA? There are many things that you can use an HSA for besides the regular medical expenses. Kid’s need glasses, braces, sunscreen, diapers, wipes, formula, and other things that may be covered under your HSA. If you don’t have access to one, consider starting a separate savings account to save for these significant expenses that come up fairly regularly in young children’s lives.
3. Put Money in a 529 or UTMA
Did you have a lot of student loans? Do you know anyone who is struggling with large amounts of student loan debt? Do you know anyone who gave up one educational opportunity due to finances? Do you want the same for your kids? I thought not. Putting money into a 529 account or a UTMA gives your child a good start in adult life. One of the most significant gifts you can give your child is setting them up for a successful future.
4. Prepare for the Future
I know how it is. You know you need to make a will and buy life insurance, and you will get on it as soon as you have the time and the money to pay for it. Well, the time is now, and the money is here. No parent wants to think about the worst happening, but as parents, we must think of our kid’s future and well-being- especially if we may not be there to take care of them.
5. Get Your Child Tutoring Help
Tutoring can be an expensive endeavor. In fact, it is a great way to make some quick cash if you are the one doing the tutoring. It’s less fun when you are the one paying for tutoring. If your child needs a little extra help, then know is the time to take advantage of this extra money to make it happen. Getting your child extra help as early as possible will help them even more later on.
6. Pay For Extracurricular Activities
Studies show that some extracurricular activities can help a child’s brain development, self-esteem, thinking skills, and responsibility. Taking extra lessons in art, music, or sport can really help any child and be particularly good for a struggling child. Help your kids do enjoyable activities out of the classroom setting by participating in a sports league or taking lessons in something that interests them. Since extracurricular lessons are usually quite expensive (and don’t forget the cost of equipment!), this can be a chance for your child to learn or try something new.
7. Buy Books
Reading is important for kids. Kids who own their own books tend to do better in life and are usually more successful. While you can get free books for your kids from a few programs, building up your child’s library usually takes more than that. Spending money on books that your kids want to read or you want your kids to read is always a great use of money! If you are looking for some book ideas, you can check these books out!
8. Stock Up Your Emergency Fund
Are you prepared for what life throws out you? Some of the most common stressors in life (unemployment, relocation, natural disaster) is often made easier to deal with by being prepared financially. Having a robust emergency fund is one of the most important things you can do for your financial security. Start by saving $1,000 and moving on from there. Your kids will thank you for taking care of this now and having a cushion to fall back on when things don’t go exactly to plan.
9. Top Off Some Sinking Funds
Do you have sinking funds? Having money put aside for the expected, occasional expenses can help a family smooth out its budget. Clothing, summer camp, dentists, car repairs, schooling fees- these are all expected events that are not easy to swing on a month-to-month basis. (Try paying for all those back-to-school supplies on your extra spending money- it doesn’t work!). Setting aside money in a separate account for these needs is a great way to make sure you have the money available to you when you need it.
10. Set Aside Money for Taxes
Now for the bad news. There may be a chance that you may have to pay this credit back. What? Since this credit is an advance on your 2021 taxes, if you owe more money to the IRS than you did in 2020 or 2019, you may end up with a lower child tax credit amount. In that case, the discrepancy will be added to your tax bill. If you are concerned that this may be you, and you did not opt-out of the payments, then make sure to set aside some money to pay your tax bill this year. Owing the IRS money is never a good idea!
Are you hoping to get the child tax credit? What are you planning on doing with it?
