This is the second part of a series on setting up a financial plan.
The beginning of the series is here.
The next article is “5 Accounts, #2 - Online Savings“.

Just about everyone has a checking account, and a lot of people (my former self included) misuse it horribly. In the UK, such accounts are generally known as “Current Accounts”, which is actually a far more useful way of thinking about them.

The upside of a checking account is extremely easy access - through cheques, ATM withdrawals or debit-card purchases, you have a ready flow of money available at all time.

Every dollar you keep in that account, though, is losing value over time. This is because the measly interest rate on checking accounts doesn’t match inflation, which generally runs at 3-4% per year. So $100 kept in a checking account for a year will only be worth the equivalent of $96-$97 in “today’s money” a year from now.

Your checking account should be your primary “monetary interface” with the rest of the world - it’s usually where your paycheck goes, and the account that you’ll use to pay for rent/mortgage payments, groceries, meals out and all the other day-to-day transactions involved in just living. You should constantly pare it down, though.

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So I’ve armed myself with a brand-new interest in personal finance, and I’ve got a list of sources to feed that interest. Time to start planning the fundamentals of how I’m going to manage and distribute my money in future.

I’m going to break this up into a series of posts because otherwise it’ll just be a long-assed screed that even I get bored of reading.

First off, there’s two main basics to take care of. Number one, determining the right accounts to keep my financial plan running, and secondly, determining a schedule for distributing money between those accounts.

Once that general framework is sorted out, I’ll need two major tools to keep track of progress:

1. A “net worth” tracker (basically, just a spreadsheet)
2. A way of tracking spending, so that I can pare down unnecessary costs and formulate a workable, sensible budget for day-to-day living.

A lot of what I’m going to cover (how to divide your money up; financial tools) can be found elsewhere on personal finance blogs and other sites, but what I hope to lay out here is a distillation of the best concepts I’ve picked up in my reading so far, from the point of view of someone who (as you may well be) is basically new to this game.

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