I’m a Financial Expert: 5 Ways You Should Use Your Child Tax Credit
Written by
Cindy Lamothe
Edited by
Jenna Klaverweiden
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Knowing how to make the most of the Child Tax Credit can sometimes be tricky. Whether you’re looking to use the credit for immediate needs or planning for the future, there are several smart ways to put that extra money to good use.
GOBankingRates spoke with Kevin Shahnazari, founder and CEO of FinlyWealth, to discuss the best ways to go about it. “Managing money effectively isn’t just about what you earn; it’s about how you maximize every dollar. The Child Tax Credit presents a rare opportunity for families to strengthen their financial future if used wisely,” he said.
Here’s some of his best advice for managing your Child Tax Credit.
Establish an Emergency Fund
One of the smartest ways to use this money, according to Shahnazari, is by building an emergency fund.
Many families are one unexpected expense away from financial hardship, and having three to six months’ worth of savings set aside can be the difference between stability and crisis.
Instead of letting the money disappear into everyday expenses, setting it aside in a high-yield savings account ensures it’s there when it’s truly needed.
Pay Down High-Interest Debt
Shahnazari noted that credit card debt can drain wealth faster than almost any other financial obligation due to skyrocketing interest rates.
Using the Child Tax Credit to eliminate or reduce this debt provides immediate relief and frees up more cash flow for future financial goals.
Every dollar used to pay off debt is a guaranteed return on investment because it stops interest from piling up.
Invest for Long-Term Growth
Investing for long-term growth is an opportunity many parents overlook when it comes to managing their child’s financial future. It’s easy to focus on short-term needs and immediate expenses, but making strategic investments early can have a lasting impact on your child’s financial security.
According to Shahnazari, contributing to a 529 college savings plan ensures that money works toward your child’s future education rather than burdening them with student loans later.
If college savings are already in place, he said parents can also consider a custodial Roth IRA, where even small contributions today can turn into substantial financial security for their child’s future.
Boost Retirement Savings
Using the tax credit to boost retirement savings is another move Shahnazari said comes with lasting impact. “Many parents prioritize their kids’ immediate needs but neglect their financial security,” he said.
Allocating part of this money to a Roth IRA or a 401(k) ensures you’re not only taking care of your family today but also securing their independence in the future.
“A well-funded retirement means children won’t have to financially support their parents later in life,” he said.
Invest In New Skills
For those looking to increase their earnings potential, using this credit to invest in new skills or side income opportunities can be life-changing. It’s tempting to spend the extra money on immediate wants or needs, but Shahnazari emphasized that this is an ideal opportunity to invest in yourself.
Whether it’s a certification, an online course or seed money for a small business, investing in personal growth can generate financial rewards far greater than the tax credit itself.
“The key is to turn a temporary financial boost into lasting financial strength,” he said.
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