On July 15th, you could start receiving a monthly check from the government through the end of the year. It’s coming in the form of an increased Child Tax Credit for 2021. This is part of the the America Rescue Plan, technically know as the American Rescue Plan Act of 2021.
Most Americans with children qualify for this increased Child Tax Credit… and it’s quite the increase.
The summarized version is that many families will receive $300/month for each child under six and $250/month for each child between 6-17 years old, through the end of 2021. And then you’ll receive the same amount again as a lump sum (whatever monthly amount you receive x 6) on your taxes next year.
The fact is, this could be a lot of money for families with several kids. Our family, for example, would receive $1,300/month and another $7,800 next year. Crazy, right?
You can also opt to receive this money in one complete lump sum next year, but I would suggest taking it now, instead of letting the government have that interest-free loan. If you want the monthly payments, you don’t have to do anything. If you want to go for the lump sum, the IRS is creating an online tool that will allow you to change it to that.
I know it’s easy to calculate yourself, but if you really like calculators, Kiplinger also has a calculator to show you how much you’ll get.
I’m not here to argue whether or not this is the best use of the government’s money. I’m simply going to give you some ideas on how to make the most of it…
This is how I suggest prioritizing it, but ultimately, it’s your decision.
Priority 1: Living
If you’re struggling to make ends meet, your first priority will be living expenses. Many Americans do need this money to live right now.
If that’s the case, that’s where the first part of this money should go. It’s not ideal to be in this situation, but at least it makes the decision on where to spend it easy.
Priority 2: Live a Month Ahead
If you’re caught up, but still living paycheck-to-paycheck, use this money to stop that.
Get caught up on your bills and start living a month ahead. You’ll live a much more stress-free lifestyle.
Priority 3: Debt
Once you’re living a month ahead, or if you were already living a month ahead, crush your debt.
An extra few hundred dollars a month, that you weren’t expecting, could easily knock out a huge chunk of your debt.
Priority 4: Build Your Savings
Once you’ve paid off any high-interest debt, or once you’re totally debt-free (your choice), build your emergency fund up.
The old idea of having 3-6 months of living expenses may not be enough. COVID showed us that.
I suggest building up a year of emergency savings, but again, it’s your choice.
Priority 5: Start a Car Fund
Cars are one of the biggest things keeping Americans poor.
Once you’re caught up, use this money to save for your next car. This way you can pay cash and get out of the car-payment trap.
Set up an automatic draft to put this money into savings. If you’re already through the first four priorities, any money you receive monthly could go towards your next car.
Priority 6: Retirement
If you get a match from your employer, you should already be putting enough in your retirement account to receive that match. That’s a 100% return on your money.
If you don’t receive a match, once your first five priorities are accomplished, start contributing to your retirement. At least 15% is a good starting point, but if you can do more than that with this extra check, do it!
Priority 7: Your Children’s College
Since this money is technically coming to you because of your kids, one could argue this would be a higher priority. Either way, once you’ve made it through the first six priorities, if not sooner, start contributing to a good 529 plan for your kids.
There are other options to save for college, but 529 plans are often your best bet.
Priority 8: Give
I suggest giving at least 10% of your paycheck before you do anything else.
Giving this 10% helped us in a tremendous way when we were barely affording to live.
Assuming you were already giving 10%, if you’re doing well and accomplishing the first seven priorities, consider giving your extra money to a local church or charity.
Of course, this isn’t an all-inclusive list. These are simply guidelines to help you decide where your money should go.
Some of you may be reading this thinking you won’t even be able to escape priority one, and that just means you really need this money. It’s a blessing for you, regardless of the political or economic implications. In that case, use it for living.
Other people may be all the way through this list and wanting more options. In that case, look at the 12 options I gave for spending stimulus checks.