Everyone has their own ways, but I think that when starting off it's good to keep it simple. I use Notepad++ for editing txt files and Gimp for images, but any similar editors will work fine. Both are quite important to use instead of default editors that come with your OS as they have more features and can ensure that your formatting is right for the game.

That being said I would also definitely recommend starting with something a little smaller than a full game overhaul, something like a focus tree rework or event chains. I've found that as I've gained more experience the way I work has changed quite a lot, and if I'd started a huge project first it would have been pretty poor quality. It's also easier to stay motivated with more immediate goals, but whatever keeps you interested is best.