At my other job, I write about food.
Just as personal finance writers often return to favorite topics like Roth IRAs and not buying expensive coffee, every food writer eventually writes about their recommended basic set of kitchen tools.
If you haven’t read one of these articles recently, you can guess what goes into the toolbox: basics like a knife, a saucepan, a wooden spoon, and a Pyrex measuring cup.
You can’t cook literally everything with those items, but you can cook enough great food to keep your mind off a $1600 solid brass duck press for a while. Maybe forever.
Your basic set of financial accounts can be nearly as simple. Here’s the starter kit everyone needs.
You may need more accounts on top of these, and you might even get by with less, but start here and use this as a checklist.
If you’re missing an account on the list, think about whether opening one would make your finances simpler or more secure.
If you have a bunch of accounts not on the list, well, it might be time to get out that chef’s knife and start chopping.
The basic four
1. A checking account for paying bills
Your paycheck gets deposited here, along with any other income.
From this account you’ll pay your housing, car, utility, insurance, school tuition, and any other bills that show up every month (or less). You’ll also set up an automatic transfer from this account to…
2. A checking account for daily spending
This can be at the same bank as account #1 or a different bank. Since the only deposits will be coming in from account #1, this is a good candidate for opening at an online bank.
This account is for daily spending on groceries, entertainment, dining out, minor household items, and so on. You can spend this account down to nearly zero, knowing it will be regularly replenished from account #1.
Why two checking accounts, when I said this was about simplifying?
Because in my experience, switching from a single spending account to two separate spending accounts with different purposes had an immediate positive effect on my family’s finances.
We went from worrying about why the checking account was always empty to knowing exactly how much we could spend without endangering our ability to pay upcoming bills.
And because you can add both accounts to Mint and see the balances anytime, it’s not much more trouble than a single account.
3. An emergency fund
This will most likely be an FDIC-insured savings account, ideally one that pays a little interest (no bank account pays more than a little interest these days) and is not too easy to get to.
An online bank where it takes two or three days to get the money should be fine. Few emergencies require a large amount of cash immediately.
Your emergency fund is there to cover unexpected medical bills, car repairs, or unemployment.
Why keep it in a separate account? Because if you keep it in account #1 or #2, you’re more likely to spend it on a non-emergency. Don’t even try to deny it.
You can squeeze out a little more interest without taking additional risk by getting creative with your emergency fund. Here are a few ideas.
4. A retirement account
This could be a 401(k), an IRA or Roth IRA, or any of the rest of the alphabet soup of lesser-known retirement accounts.
Most families will end up having multiple retirement accounts (one spouse’s 401(k), the other spouse’s Roth IRA, and so on), but one is infinitely better than none.
If you’re looking to open your first retirement account and don’t have a $1000 or more to start with, check our guide to investing with very little money.
One more for the self-employed
If you’re self-employed, first of all, your retirement account should be one designed for self-employed people, such as a Solo 401(k). You’ll also need one more account to keep yourself out of tax trouble:
5. A quarterly tax account
If you work for a boss and receive a W-2, your income and Social Security/Medicare taxes are automatically withheld from your paycheck. If you work for yourself, no such luck.
Plenty of freelancers and small business owners shoot themselves in the financial foot every year by failing to pay their quarterly taxes.
Everyone who pays quarterlies should accumulate the money in a separate account designated for the purpose, and should set aside a portion of every check.
You can connect that account directly to the IRS via EFTPS.gov and pay online in seconds.
What’s missing?
Notice what’s missing from the list? An old-fashioned non-emergency savings account.
A savings account can be handy for saving up for short- to medium-term goals, but the best interest checking accounts pay nearly as much interest as savings accounts.
The savings account at one major online bank, for example, pays 0.95% interest, while the checking account pays 0.75%.
And reward checking accounts can pay more than any savings account, if you follow the rules.
Now, with that out of the way, what should I make for dinner? I have an idea, but it involves $1600 and a very unhappy duck.
SEE ALSO: 50 ways to improve your finances in 2013 >
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