If you are the parent of a child under 18, there is a good chance you have received two advanced payments of your Child Tax Credit.
For 2021, all taxpayers who meet the income requirements are eligible to receive half of their annual Child Tax Credit in the form of monthly payments ($250 per child ages 6-17; $300 per child under 6). The remaining half will be claimed on your taxes in 2022. If you have questions about your eligibility or haven’t received your payments, you can troubleshoot here.
For many parents, these payments can be a great resource to help meet some basic needs, especially if you are unemployed or have had some economic setbacks during the pandemic.
If you fall into this category, check out this post that may help you prioritize your basic spending needs.
But for those still employed and able to pay your monthly bills, this child tax credit payment can be a great source of extra income, and we want to help you make the most of it!
Here are 4 ways you can make the most of this extra income:
1. Establish an emergency fund.
Financial experts recommend everyone should have at least $1,000 saved up in a rainy day fund. Having this basic emergency fund makes things like broken appliances, car troubles, or unexpected medical expenses a lot easier to bear. Additionally, experts further recommend a larger savings that could cover 3-6 months of salary in the event of job loss. This is a big undertaking, so don’t stress if you aren’t able to save quite this much, but every penny you are able to save makes an emergency of any kind much less stressful!
2. Pay down debt
Popular financial guru Dave Ramsey is famous for his “snowball method” of paying off debt, and for good reason—it works! In 2016, the Harvard Business Review concluded this to be the most effective method for debt repayment. Here’s how it works:
- List all your debts out, smallest to largest.
- Pay the minimum payments on all of your debt, regardless of interest.
- Put any extra income you have toward the smallest debt you have.
- Once that is paid, apply the former minimum payment you made on your smallest debt to the next highest up, plus any additional income on top of that.
Eventually, the idea is that you will be debt free!
3. Save for a goal
If there is something you have had trouble saving for, now might be exactly the time to do it! Perhaps you need new piece of furniture, some repairs to your home, or a special getaway with your family. Or might we suggest a down payment for a new home?! To put your child tax credit payments toward a savings goal, we recommend depositing them into a savings account as soon as they hit your bank account if directly deposited, or depositing the check directly to your account if you get a paper check. Whatever you are saving for, this will help ensure the funds don’t accidentally get spent on something else.
4. Invest
Investing can be a great way to prepare for the future. There are many options when it comes to investments, and that can easily get overwhelming. To keep it simple, start with what type of investments you want to make. If you are wanting to save for retirement, an IRA is a great way to go. This article can break down some more details on IRA for you.
You also may want to create an investment in your children’s college funds. This is a great breakdown of that option.
Finally, you may be interested in growing your money with the stock market. Here is a beginner guide on that.
