Money Foundations: Plan, Track, and Save · Lesson 1 of 2
Build a Spending Plan That Fits Your Real Life
A step-by-step monthly plan for a sample DC-area household, including tips, cash work, uneven paychecks, and money sent to family.
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Parts of this lesson are not translated into your language yet, so they are shown in English.
In this lesson
What you will learn
- Build a monthly spending and saving plan from your own income and bills, step by step.
- Plan around income that changes, such as tips, gig apps, cash work, or seasonal jobs.
- Include money you send or give to family as a planned expense instead of a surprise.
- Adjust the plan in a month with extra money and in a month with less.
How this connects to class: In class you tracked your income and expenses and made a first spending plan. This lesson shows a full plan for a DC-area worker whose pay changes, and a simple way to plan for months with extra money and months with less.
Words to know
- Spending plan
- A plan for how you will use the money you expect to get each month, including bills, savings, and spending. It is also called a budget.
- Take-home pay
- The money you actually get after taxes and other deductions come out of your pay.
- Irregular income
- Income that changes from week to week or month to month, such as tips, gig app earnings, cash work, or seasonal jobs.
- Baseline month
- Your lowest typical month of income. You build your spending plan on this amount so your bills are covered in most months.
- Obligation
- A payment you have promised to someone, such as a loan payment, child support, money you promised your family, or taxes you will owe.
- Bills account
- A separate account, or an envelope if you use cash, that holds money only for fixed monthly bills until they are due.
- Overdraft fee
- A fee a bank or credit union may charge when you pay for something with more money than you have in your account.
- APR (annual percentage rate)
- The yearly cost of borrowing money, including interest and most fees, shown as a percent.
Start with your baseline month
A spending plan shows how you will use the money you expect to get each month. In class you listed your income and your expenses. The hard part comes when your income changes. Tips, gig apps, cash jobs, and seasonal work can make every month different.
The answer is to plan on a baseline month. This is your lowest typical month of income. It is not your best month, and it is not your average. If you plan on your average, some months will not have enough money for your bills. If you plan on your lowest typical month, your bills are covered in most months, and you decide ahead of time what to do with any extra.
- Find your income for the last 6 to 12 months. Use pay stubs, bank statements, earnings reports from your apps, or a notebook where you write down cash.
- Count only take-home pay: the money you get after taxes and other deductions.
- Find your lowest month. That is your baseline. If that month was very unusual (for example, you were sick for three weeks), use your second-lowest month.
- No records yet? Write down every dollar you get for the next four weeks, including cash. Start with that amount, and update it as you learn more.
Example
Carlos's plan for a baseline month
Carlos lives in Langley Park, Maryland, and shares a two-bedroom apartment with his cousin. He is a line cook at a restaurant in Columbia Heights, in DC, and is paid every two weeks. He also gets tips, and on some weekends he paints apartments for cash. Every month he sends money to his mother in El Salvador.
| Income | Amount |
|---|---|
| Two paychecks from the restaurant (take-home pay) | $1,800 |
| Tips (lowest typical month) | $300 |
| Cash painting work (lowest typical month) | $300 |
| Baseline income | $2,400 |
| Type | What it is for | Amount |
|---|---|---|
| Need | Rent (his half) | $1,050 |
| Need | Electricity and internet (his half) | $85 |
| Need | Groceries and household items | $380 |
| Need | Metro and bus | $110 |
| Need | Phone | $45 |
| Need | Clothes, haircuts, and medicine | $70 |
| Obligation | Money for his mother, plus the transfer fee | $210 |
| Obligation | Credit card payment | $50 |
| Obligation | Set aside for taxes on cash work (20% of $300) | $60 |
| Savings | Emergency fund | $100 |
| Savings | Yearly costs (renter's insurance, gifts) | $40 |
| Want | Eating out and fun with friends | $130 |
| Want | Streaming service | $15 |
| Extra | Extra for surprises | $55 |
| Total | $2,400 |
$2,400 income − $2,400 planned = $0 left to plan
Every dollar now has a place. Savings and the extra for surprises are part of the plan too.
Needs, obligations, savings, and wants
Sorting your expenses helps you decide what to protect and what to cut when money is low.
- Needs
- Things you must have to live and work: housing, utilities, food, a way to get to work, a phone, and basic medicine.
- Obligations
- Payments you have promised to someone: loan and credit card payments, child support, money you promised your family, and taxes you will owe.
- Savings
- Money for emergencies, goals, and costs that come once or twice a year, such as renter's insurance or gifts. Put it in the plan like a bill, so it is not left for last.
- Wants
- Things that make life better but that you can do without for a while: eating out, new clothes, streaming, and trips.
Money for family is an obligation. If your family depends on you each month, plan that money every month, the same as a bill, and include the transfer fee. Then it is never a surprise. To lower the fee, compare services before you send. See the lesson on sending money abroad.
Since January 1, 2026, a 1% federal tax applies when you pay for a money transfer to another country with cash, a money order, or a cashier's check. On $200, that is $2. The tax does not apply when you pay from a bank or credit union account or with a debit card.
Cash work needs a tax line. If your net earnings from working for yourself, including cash work, are $400 or more in a year, you generally owe self-employment tax of 15.3% on most of them, and income tax may apply too. Carlos sets aside 20% of his cash pay, but that is only an example. When you file, free tax help from a VITA site can show you how much you owed, so you can choose a better amount for next year. See the lesson on taxes for gig and cash work.
Example
A month with extra money, and a month with less
When extra money comes in
Carlos decided ahead of time where extra money goes. In October, his tips were $600 and painting paid $500. That is $500 more than his baseline month.
| Step | Amount |
|---|---|
| First: taxes on the extra cash work (20% of the extra $200) | $40 |
| Emergency fund (half of what is left) | $230 |
| Extra payment on his credit card (one quarter) | $115 |
| Wants (one quarter) | $115 |
| Total extra income | $500 |
When a month brings in less
In January, the restaurant was not busy. Tips were only $150, and there was no painting work. Carlos had $450 less than his baseline month. He followed his plan, in this order:
- Cut wants for the month: $145.
- Use the extra for surprises: $55.
- No cash work means no tax to set aside this month: $60.
- Pause saving for emergencies and yearly costs for one month: $140.
- Take the last $50 from his bills account reserve, and put it back the next month.
$145 + $55 + $60 + $140 + $50 = $450
Carlos did not touch rent, utilities, food, or the money his mother depends on. If you cannot pay a bill in full, call the company before the due date and ask about a payment plan.
Use a bills account when pay goes up and down
A bills account is a second account, or an envelope if you use cash, that holds money only for fixed bills. Fixed bills are the same amount every month. When pay comes in at different times and in different amounts, a bills account keeps the bill money safe until the due date.
- Add up your fixed monthly bills. For Carlos: rent $1,050, electricity and internet $85, phone $45, credit card $50, and money for his mother $210. Total: $1,440.
- Divide by the number of paychecks you get in most months. Carlos gets two: $1,440 ÷ 2 = $720 from each paycheck.
- On payday, move that amount to the bills account right away. Many banks and credit unions let you set this up so it happens by itself.
- Pay bills only from the bills account. Use your other account, plus tips and cash work, for groceries, Metro, and daily spending.
- Build a starter reserve: try to keep one extra week of bill money in the bills account.
Paid every two weeks? In most years, two months have three paydays. Do not count the third paycheck in your baseline. Use it to build your bills reserve or your emergency fund.
Paid in cash? Deposit it as soon as you can. Money in an insured account is safer than cash at home, and deposits give you a record of your income. Some banks and credit unions open accounts with an ITIN or a passport. See the lesson on opening a bank account, even without a Social Security number.
Watch out
Traps when money is low
When a month brings in less, fast-money offers can look like help. Many of them take money from next month.
- Planning on your best month. A plan built on a great month fails in a normal month. Use your baseline.
- Overdraft fees. If you spend more than your balance, your bank may charge a fee for each purchase. Check your balance before you pay, and ask your bank how its overdraft fees work.
- Paycheck advance apps. Some apps charge a fee for fast delivery or ask for a "tip". Small fees on small advances can equal a very high APR. The advance also comes out of your next paycheck, so your next pay period starts with less.
- Online payday loans. DC and Maryland limit interest on most small loans, and Virginia limits the cost of short-term loans. But unlicensed online lenders still offer loans with very high fees. See the lesson on high-cost loans.
Tip
Your 10-minute weekly check-in
Pick the same day each week, for example Sunday evening, and set a reminder on your phone. Then check these five things:
- Write down all the money that came in this week, including tips and cash.
- Look at what you spent. Use receipts, your banking app, or a notebook for cash.
- Compare with your plan. Which lines are over? Which are under?
- Look at the bills due in the next two weeks. Is there enough in the bills account?
- Choose one small change for next week, if you need one.
The plan does not have to be perfect. The goal is to see problems early, while there is time to fix them.
Lower costs and free help near you
Metro Lift. If you get SNAP food benefits from DC, Maryland, or Virginia, you can enroll in Metro Lift and pay half price for Metrobus and Metrorail trips. The discount does not apply to passes or to county buses such as TheBus and Ride On. If Carlos got SNAP and all his trips were on Metrobus and Metrorail, his $110 a month could drop to about $55.
Help with your plan. A financial coach can help you build your first plan and keep using it. These local groups can help:
- DC, Maryland, and Virginia: the Latino Economic Development Center (LEDC) offers free one-on-one financial coaching in English and Spanish. Call 202-540-7400.
- DC: the DC government's Office of Financial Empowerment and Education runs financial education programs, including Financially Fit DC.
- Maryland: the CASH Campaign of Maryland connects Maryland residents with free financial coaching.
- Northern Virginia: Britepaths offers free financial coaching. Call 703-704-6101.
Key takeaways
- Build your plan on your lowest typical month of income, not on your best month or your average.
- Put money for family, savings, and taxes on cash work into the plan like bills, so they are never a surprise.
- Decide ahead of time where extra money goes, and what you will cut first when a month brings in less.
- A separate bills account keeps money for fixed bills safe until the due date.
- A 10-minute check-in each week helps you find problems while there is still time to fix them.
Check your understanding
Answer the questions, then select Check my answers. Get 4 of 5 right to complete this lesson. This is practice: there is no time limit, and we do not keep your answers.
Go further
Trusted websites where you can learn more. These links go to other websites that Dollar Scholars does not run.
-
Making a Budget (another website)
Plain-language steps for making a budget, with a free budget worksheet you can fill in or print.
-
Cómo hacer un presupuesto (another website)
The same guide in Spanish: simple steps to make a budget, with a free worksheet.
-
Your Money, Your Goals toolkit (another website)
Free worksheets you can print to track income and spending, plan cash flow, and set up a bill calendar.
-
Metro Lift reduced fares (another website)
How people who get SNAP benefits from DC, Maryland, or Virginia can enroll to pay half price on Metrobus and Metrorail trips.
This lesson is general financial education, not legal, tax, or financial advice. Rules and amounts change, so check important numbers with an official source.