If you have dependent kids, your bank account will be a little healthier, starting in July. What is this money, and what should you do with it?
Starting on July 15, 2021, U.S. taxpayers with eligible children will receive monthly payments as an advance on the expanded child tax credit for 2021. Instead of waiting until you file your taxes the following year, these payments will be paid each month from July to December. Most taxpayers will receive these payments via direct deposit, though some may receive a paper check or debit card. Maximum payments will be $300 per month for each child ages 5 and under and $250 per month for each child ages 6 to 17. You’ll get the other half of the tax credit as usual when you file your income tax return.
These unexpected payments can be a great opportunity for you to improve financial security for your family. What are some smart things to do with it?
Catch Up on Essentials
If you’re behind on any of your regular expenses, use this money to catch up. Pay past-due bills, catch up on your vehicle maintenance, replenish your pantry and make sure that everyone has good shoes that fit. I’m sure you have other essential expenses that could use some attention; this is a good time to meet those basic needs.
Build Your Emergency Fund
If you have a family, you’re going to have emergencies. Broken windows (my daughter managed to crack my windshield one time, from the inside!), medical expenses, unexpected travel home -- it can be hard to predict what will come next. A larger emergency fund will help you weather unplanned expenses without having to cut into other costs or go into debt.
How big of an emergency fund do you need? There’s no right answer, but most experts agree that you eventually should have three to six months’ worth of basic expenses saved for an emergency. That can be a lot, so start smaller and add a little every month, or when you have unplanned income such as this child tax credit.
Save for the Future
Whether it is for your retirement or your children’s college education, it never hurts to save ahead. A total of $250 per month, per child for six months could grow to several thousand dollars by the time they reach adulthood.
Make Some Family Memories
You can do many free things to make “family fun,” but some things cost money. Once you’ve met your family’s basic needs, consider taking a small portion to do something fun that wouldn’t be in your usual budget. Maybe that’s a membership to the local zoo, a day at a water park or a baseball game. It’s OK to enjoy a little fun.
Being frugal, I’d be figuring out the bargain ways to do everything (free tickets to Water Country USA or a minor-league baseball game instead of a major-league game), but maybe you just really want to do something that can’t be done frugally. As long as it fits in your overall plan, do it and enjoy.
There’s lots of talk about possibly extending this larger tax credit or other changes to our overall tax system, but it is impossible to predict what will happen. What you can do is use the information we have right now -- and these six monthly payments -- to improve your family’s financial foundation and prepare for the future, regardless of what happens outside of our control.
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