The American Rescue Plan Act of 2021 includes the third round of stimulus payments and increases the child tax credit. After a year-long pandemic and the lingering economic uncertainty, everyone will greatly appreciate this infusion of cash. What should you do with the money? Here are five smart ways to spend your child tax credit and stimulus check.
Your Child Tax Credit
The American Rescue Plan Act of 2021 expands the child tax credit to $3,600 for each child under the age of six and $3,000 for each child between six and 17.
The first half of the child tax credit will be issued in monthly installments beginning July and ending in December. The second half will be paid as a refund once you file your 2021 taxes. Your income impacts the child tax credits, so the best thing is to check the details to determine how much you’ll have coming in each month and how much to expect next year.
1. Save for College
A smart way to spend the child tax credit is to put it in a 529 Savings Plan. The money you invest will grow tax-free and can be used for private school tuition, as well as traditional college and trade school.
2. Increase Your Contribution to your Employer’s FSA Plan
If you have a flexible spending account (FSA) at work, you might want to use your child tax credit to increase your contributions to it. The money you invest is pre-tax dollars, and you can use the account to cover pre-school, summer camp, daycare, or after-care expenses.
3. Financial Literacy
Experts recommend that the moment your child has basic comprehension skills, you should start to teach them about money. Now would be a great time to get your kids in the habit of saving and investing. You could give a portion of the monthly child tax credit to your children and help them open a savings account at the bank. Scan the investment news with your older kids and pick a couple of shares in which to invest some seed money. It will be fun, and you’ll deliver a powerful message about the power of money to create financial health.
The Third Round of Stimulus Checks
If you haven’t yet received your $1,400 stimulus check, you should have it soon. The distribution process has already rolled out. What are some smart ways to spend your stimulus check?
4. Make Sure Your Financial Goals are On-Track
First of all, if you’re not on track to meet your financial goals, you might want to put your stimulus payment to work for you before you do any spending.
- Have you saved enough for emergencies? The last year was a big wake-up call for the importance of having an emergency savings account.
- Did you want to reduce debt or pay off some credit cards? Use your stimulus check to help you check off those accounts.
- You may have fallen behind in rent payments and utility bills. Maybe you delayed buying essential household supplies, bulk groceries, and other items. Use your stimulus check to catch up on bills and to restock your shelves.
5. Start a Business
Another pandemic lesson is that having a side-gig can be a lifesaver. There are many small businesses you can launch with $1,400. For instance, start a second-hand e-commerce shop. A 2019 report by ThredUp predicts that the resale market will reach $23 billion by 2023. You can quickly turn your closet of unwanted garments into a successful home-based business.
The smartest way to spend your child tax credit and stimulus check is to invest in your financial well-being.