Use it but try not to make a habit of overspending

If you thought the past few months were exactly what our economy needed to enter a robust recovery, you ain’t seen nothing yet.

Coming later this month in mailboxes across the United States, advanced child tax credit checks will make 2022 happy, and for some Americans who get caught up in it, a really tough 2022.

The child tax credit is not a new concept. Before 2021, when preparing your tax return for the previous year, you could claim the child tax credit if you were eligible, and potentially receive a larger tax refund. However, as you’ve probably heard, how credit works changed in 2021.

Now the credit will be advanced to you in the form of monthly checks sent by the Internal Revenue Service. An eligible family will receive $ 1,800 in cash in 2021 for a child aged 5 or under and $ 1,500 in cash in 2021 for a child aged 6 to 18. Then the family, if eligible, will receive a traditional tax credit of $ 1,800 or $ 1,500, respectively, per child.

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I am not here to discuss today whether this is a good or a bad idea. Instead, I am here to make a disturbing prediction. The 2021 advance child tax credit, while likely to be very useful for millions of families, will create new financial dependencies for millions of other families, creating greater consumer debt in the years to come.

Six months of cash flow is virtually guaranteed to increase consumer spending habits, creating dependencies and obligations that cannot be easily removed. Your goal should be to use the next six months to move you forward towards stability without embracing the burden of obligation.

While you will receive advance child tax credits in the form of monthly checks this year, there are (a) a few ways to ensure that your temporary fortune does not become a permanent woe in 2022 and beyond.

First, if you’ve racked up debt or depleted your savings in the past 15 months or so, use the six months of increased cash flow to recover.

Paying off debt and renewing savings are the most obvious examples of creating stability. In December, when payments stop, all you have to do is turn off the savings or debt elimination mechanism, and you’re officially better off than six months ago.

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Theoretically, the reason a child tax credit exists is that raising and caring for a child is an expensive business. You don’t have to do an about-face and use the tax credit directly for your children, but that’s not a bad idea in 2021 since the tax credit is an advance.

If you can, consider injecting the next six months of increased cash flow directly into your child’s future. For some families this could mean making deposits into college fundraising vehicles, and for other families this concept may take an even more interesting approach. Why not fund something like orthodontics or some other big and random expense that usually seems difficult to fund?

The alternative to these specific ideas is to do nothing. This is what most people will choose to do. This is the problem. It is fear.

After studying people’s financial habits for over two decades, I can tell you that it only takes a few months of discretionary income increases to form a powerful, and often bad, new habit.

When this happens and the payments stop only six months later, the spending doesn’t stop immediately. In fact, it can take months not only to identify the problem, but to rectify it afterwards. And in its wake, a person will find consumer debt.

The advance child tax credit will absolutely stimulate the economy. For those who can afford to take this tax credit to their advantage and then do so, the impact of this tax credit will be magnified for years to come. If you don’t need the advance tax credit to make ends meet over the next six months, make a choice to stabilize your finances and avoid the dangers that arise when new spending habits come to an end. an increase in cash flow.

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