Personal Finance

Model for structuring personal finance accounts.
Table of Contents

Structuring financial accounts makes it easier to track spending, automate savings, and control behavior regarding money. A simple way to structure personal finance consists of a checking account, spending account, short-term savings accounts, and long-term savings account. This structure separates the account types by withdraw-frequency and income.

The checking account (transactional account) is for salary and fixed expenses, between monthly and annual in frequency. Fixed expenses include rent, loan payments, insurance payments, monthly spending, automated savings, and charity donations. Using the checking account’s bank statement, we can track money between monthly and annual levels.

The spending account (transactional account) is for variable expenses, between daily and annual frequency, such as purchases with payment cards or payment processors. Using the spending account’s bank statement, we can track variable expenses between daily and annual levels. Also, manually transferring money from the checking account to the spending account every month makes you more aware of your spending habits.

We can create short-term savings accounts as needed for targeted savings goals with a one to ten-year time-horizon such as saving for a house, car, or education. Because interest rates have been low after the financial crisis, we should consider saving on securities using a brokerage account as an alternative for medium-term saving goals.

We use long-term savings account (brokerage account) to invest in securities (equity, bonds, etc.). Low-cost index funds or exchange-traded funds (ETFs) are good options for long-term investing and capitalizing on market returns. However, investing always has risk, and the market returns might be positive or negative in the short term, but typically the trends are positive long term in developed markets. We can also invest directly into cryptocurrencies by creating an account into a cryptocurrency exchange.

Available options for financial institutions are typically specific to a country. The following recommendations contain institutions specific to Finland and Nordic countries. Therefore, all of them may not be useful for you unless you are a Finnish citizen or planning to move to Finland.

Nordea is a Nordic bank. Their online services are satisfactory, and you can use the Nordea Vallet application for tracking payment card spending.
Nordnet is a brokerage company that offers the ability for automated monthly savings to index funds or ETFs.
Coinmotion is a company that offers the ability to invest or automate monthly savings into cryptocurrencies.
Vero is the Finnish tax authority. Finnish citizen can use their services for filing tax reports.
Investopedia is a great resource for finance terminology and concepts.
I Will Teach You to Be Rich, by Ramit Sethi, discusses how to improve personal finances by understanding the main factors in budgeting, saving, spending, and investing.
The Little Book of Common Sense Investing, by John C. Bogle, explains why investing through low-cost index funds is the best way to capture “your fair share of market returns.”
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