My Paperless Personal Finance System: A Work in Progress

Last summer, as a part of my quest to get rid of clutter, I began to move toward paperless personal finance. I had planned to share my system only once I'd perfected it, but yesterday Daniel e-mailed to ask for a glimpse of its current state.

To go paperless, you might need a scanner (or some other way to convert your documents to digital files). I also recommend using a shredder to dispose of paperwork. (A shredder is one of the best defenses against identity theft.) Here's how my current paperless personal finance system works after nine months of trial-and-error.

Handling income
Having your employer electronically deposit your paycheck for you is the first step in going paperless. This wasn't an option for me at the box factory. Now, however, I have each of my sources of blog income automatically deposited to my business checking account. This reduces the risk of mail and identity theft, and saves me the hassle of running to the bank.

This business account adds a layer of complexity to my finances, but because I've automated everything, it's not too bothersome. Most of my income sits in business checking for months on end. I make quarterly estimated tax payments from this account (a process that is not automated), and retain some of the rest for other business expenses (read: more taxes at the end of the year). Once per month, I transfer a “paycheck” to my personal checking account at the local credit union. This amount is roughly equal to my former income at the box factory.

Juggling accounts
Most of my “paycheck” remains in checking, from which it is automatically transferred to various monthly bills. (The only bill I still pay by check is the mortgage. The mortgage company wants $11 for an electronic transfer. I'd rather pay 42 cents for a stamp.) The rest of my money is divided among three savings accounts:

  • My ING Direct emergency fund
  • My Mini Cooper account (at the credit union)
  • My vacation fund (at the credit union)

I don't like having my accounts spread around, if only among two banks. Based on suggestions from GRS readers, I plan to move all my savings to subaccounts at ING Direct, but keep my checking account at the credit union. (I will document this process for an upcoming entry.) Besides, ING Direct pays 3.00% interest; my credit union is currently paying 0.35%!

Paying bills
Except for the mortgage, I've set up electronic statements and payments for all my bills. Every month, I receive an e-mail notice from each company that my statement is ready. I verify that the bill is correct. If I were to find an error (none so far), I would cancel the scheduled electronic payment and contact the company to correct the problem.

Most of my bills are set to be paid automatically. I'm wary of my credit card company, however, so I process that by hand every month. I simply log in to the bank's web site, verify the totals, and then initiate a payment.

Processing paperwork
Using this system means I deal with a lot less paper than I used to, but I still receive certain bills and statements by mail because the companies don't offer any other option. Plus I accumulate the normal receipts through day-to-day living.

I keep most receipts only until I'm sure the bank or credit card has processed the transaction correctly. (Others — for an appliance, for example — I keep on file.)

When I receive any other paper item, such as a bank statement, I immediately scan it and convert it to PDF. Based on reader recommendation, I use the Fujitsu ScanSnap S510M document scanner (Windows version). This is not a frugal option, but it's damn efficient. The ScanSnap looks and feels like an inkjet printer, but it scans paper quickly and accurately, automatically converting the documents to PDF. (You may be better off using your existing scanner, if you have one.)

 

After scanning, I shred the original document. I name the PDF something sensible (“200805 – Mortgage.pdf”, for example), and then save it to a pre-set folder. This part of the system is key, actually. Without care, a digital filing system can become just as cluttered as a paper system. It took me several months, but I've created a naming convention that works for me.

My hard drive is backed up daily, so I'm not worried about data loss due to computer failure. I would like to create off-site backups, however, so I intend to look at Shoeboxed, a free online tool for receipt storage.

Reconciling statements
Every weekend, I reconcile my accounts. I use Quicken to download data from my banks and my credit card company. I verify that the information is correct, and then think about upcoming expenses. If I believe I can afford to, I transfer money from my personal checking account to one or more of my savings accounts. (I hope to move another big chunk to my emergency fund in the next week!)

I still suspect that one day I will move to a web-based tool like Wesabe or Mint or Quicken Online, but for now I'm happy with Quicken.

My impressions
Looking at this system, it's clear that I've come a long way in the past year. I'm moving closer to the paperless personal finance system I described in August. Instead of retaining a shoebox full of paper every six weeks, I'm now filing just a few pages. After using these techniques for the past few months, I'm very happy with them. They've helped me to reduce clutter and save time.

My system isn't perfect, though. I need to move all my savings accounts to ING Direct. Since registering a couple of business names last winter, the junk mail has picked up again — I need to put a stop to that. And I need to find out if there's a way to pay my mortgage electronically without paying $11 per month.

Have you moved to a paperless personal finance system? Have you taken steps to automate your finances? How do you keep things organized? How do you manage all of the files and PDFs? Are you worried about data loss?

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John
John
12 years ago

Couldn’t you just pay your mortgage with an electronic payment from ING? Or does the credit union charge for incoming electronic payments as well?

Red
Red
12 years ago

WRT your mortgage payment. Bill pay at my credit union has an option where you can schedule a physical check to be sent out from the bank. And you can further specify that this is done automatically at a given interval (Say, monthly). They do not charge you for a stamp or postage. I use this to pay for my rent monthly. It’s quite complicated but it’s all automated: 1) 5 days before rent is due my portion of the rent is transferred from savings to checking automatically. 2) My fiance, who is at the same bank, transfers her portion… Read more »

J.D.
J.D.
12 years ago

Interesting question, John. I’ve only tried to pay the mortgage via the mortgage company’s web site, where they want $11 to do so. I never considered doing it from ING Direct. I’ll have to look into that. My concern is our extra principal payment. We currently pay a few hundred dollars extra per month. I’m not sure how we’d be able to designate that with a “push” transaction. But it’s certainly worth exploring!

J.D.
J.D.
12 years ago

Red, does it cost you anything to use Bill Pay at your credit union? Mine charges $5/month, so I haven’t signed up. I’ve been using “pull” transactions from the cable company, phone company, etc…

Phil A.
Phil A.
12 years ago

With the exception of my mortgage payment and condo fee payment everything else is paid online.

Jeremy
Jeremy
12 years ago

You shouldn’t have any problem doing a bigger payment. I currently do that with my mortgage and any extra is automatically applied to the principal.

It’s amazing what these mortgage companies can get away with when it comes to fees. Especially when it makes it easier for them…

JenK
JenK
12 years ago

$5/month? Wow. My credit union offers a free bill pay option (usually electronic) which we use for our mortgage.

Heidi
Heidi
12 years ago

I have finally gone completely paperless. My bank offers free bill pay, so that’s how I pay my mortgage and infrequent medical bills, and the rest I use the “pull” method. I enter all payments into an excel spreadsheet the day I make them, and then wait for them to clear before reconciling to Quicken. As a former banker, I am not at all worried about data loss. This information is backed up on multiple servers and must be kept on file for 2-7 years (depending on the account type). Now I just wish that all of the places I… Read more »

mikemc
mikemc
12 years ago

@John ESI Money

ING doesn’t allow you to do billpay. You can only do money transfers with between approved checking/savings accounts.

savvy
savvy
12 years ago

I’m fairly paperless as well. I use ING checking and am able to “push” a physical check to my mortgage company. If I put “extra principal” on the memo line, it’s applied correctly to my loan. For everything else, I either pay via the company website or ING’s online bill pay. I noticed you mentioned scanning your statements/documents. Do you have the option to receive these electronically? I receive most bills/statements via email or download from the company website. I think the mortgage statement/bill is the only one I receive via mail. I keep each one until I make a… Read more »

mig
mig
12 years ago

my bank provides me with free billpay as long as i keep a certain balance. i pay my rent this way as well. in the last year, i’ve used two paper checks and they were both to friends for sports teams dues because i forgot to get cash before the game. i always carry one check in my wallet just in case.

savvy
savvy
12 years ago

@mikemc – You may be thinking of ING savings accounts. I am able to use online bill pay as well as send paper checks from my Electric Orange checking account.

Jim McKay
Jim McKay
12 years ago

My wife and I have been as paperless as possible for years… We use a Bill Management Service called Paytrust. (http://www.paytrust.com) It is one of the oldest online bill management services around, and used to be independently owned and operated but have been acquired by Intuit in the last 2 years. All of our bills are either retrieved electronically by Paytrust, or are mailed to a PO box (unique to us) at their Imaging facility and then presented to us electronically.

Michael M
Michael M
12 years ago

If you have an electric orange checking account with ING you can pay all your bills electronically through push transactions and even send paper checks through first class mail to those businesses that do not accept electronic bill payments for free.

J.D.
J.D.
12 years ago

savvy wrote: I noticed you mentioned scanning your statements/documents. Do you have the option to receive these electronically? Out of curiosity, I checked my scanned documents for the year. Turns out I’m only receiving two regular personal items on paper on a monthly basis: the mortgage bill and my credit union account statement. I’m almost positive I can tell the credit union to send me electronic statements only. I don’t think I can do this with the mortgage, but I’ll check. There are still some irregular items that come by mail — insurance policies, social security, etc. — but most… Read more »

Geoff
Geoff
12 years ago

For backing up scanned documents, I use Mozy Home (http://mozy.com/home). I have it set up to monitor folders where I put the documents, and it backs up the files nightly, or you can force a backup when you’re done scanning. It’s free up to 2GB, which I’ve yet to max out. After that, unlimited storage for something like $5.00/mo. Very nice, and easy to use.

GBlogger
GBlogger
12 years ago

Re: bill-pay fees at banks My bank doesn’t charge for bill pay if you do it through its website, but it charges a monthly fee if you want the convenience of entering the bill pay through Quicken. But one day I happened to be on the phone with the right phone rep. of the bank, and he asked whether I wanted to request a waiver of the monthly Quicken bill-pay fee. I said, “Of course!” He put in the request, it was granted, and I haven’t had any monthly bill-pay fees from the bank since. I would have never known… Read more »

HollyP
HollyP
12 years ago

I use billpay for my mortgage, which is electronic. When I pay extra principal, I make a separate payment. My mortgage holder sometimes has a problem separating out p+i payment from extra principal when I lump them.

Allison
Allison
12 years ago

I used to use Quicken to manage my money, but I recently discovered Yodlee and absolutely LOVE it. Yodlee allows you to see all of your accounts real time, from frequent flyer miles to checking accounts. It’s amazing. You also can customize transactions and categories. For electronic file management, I currently used DocumentWallet until it was recently replaced with ReceiptWallet. Both pieces of software are awesome. You should check them out. I’m curious about your file naming structure. Could you share that with us?

wishing2Bwise
wishing2Bwise
12 years ago

For anyone really interested, Wells Fargo has the best online bill pay I’ve found. You can schedule the payments in advance (one-time, recurring, etc.) and the billpay forecasts your balance in 7 days (after it pays your bills), which is very helpful for the financially challenged. You can categorize your bills, too, to keep track of auto expenses, household expenses, insurance, etc. One very nice feature is the “My Spending Report” which tracks all of my spending each month, and I can even categorize my ATM withdrawals and my checks into categories. My Spending Reports tells me my average for… Read more »

The Happy Rock
The Happy Rock
12 years ago

Wow, your system is very similar to my own, although I use ING for everything including checking and mortgage. Sending checks by mail, and electronic bill pay are all free. I use the heck of ING’s free check mailing and save .42 sents each time I do it. there was a break in time I needed to get comfortable, but now I love it. I don’t scan documents as I have a decent paper filing system setup, but like you I only get a few things by snail mail and even less needs to be filed. I also use the… Read more »

Zane
Zane
12 years ago

If you don’t have the money to buy a ScanSnap, but still want to be able to make paper documents searchable you could try using your existing scanner or digital camera in conjunction with Evernote. Evernote can identify and index words in images making them searchable.

Evernote Overview
http://www.youtube.com/watch?v=i_ncr1Ee9e8

April
April
12 years ago

We are pretty much completely electronic (thanks to free BillPay) save for a rare medical bill or irrigation that is paid so infrequently. I have a monster shredder and shred everything from the gazillion credit card offers to bank statements and other statements. Many I shred right away once I confirm accuracy as they are available online (past bank statements and ccard statements for example).

lulugal11
lulugal11
12 years ago

Wow JD congrats on the system. Use your ING electric orange account to send the mortgage a paper check and you won’t have to pay for the stamp. I have to pay my car loan via paper check because they charge for bill pay and credit card payments. All you do is go into Electric Orange and choose pay by check, put in the amount you want to pay and the address. The send the checks out every month and you can vary the amount if you want or just leave the set amount. Easy to do and saves you… Read more »

Rich
Rich
12 years ago

What my credit union does, and what I suspect the other free bill pay banks are doing is:

a) The first check goes out on a paper check.
b) The bank notes which account it gets deposited into
c) Future ‘checks’ are not actually paper, but ‘echecks’.

This way the bank isn’t actually paying postage on every bill you pay.

For what it’s worth, my blog post today was also about our money system. We do still keep paper copies of bills, but they all say “paid online, May 20/2008” etc. on them.

http://richerandbetter.blogspot.com/2008/05/our-financial-strategy.html

Andy
Andy
12 years ago

I am very impressed. I would love to get to a system like this. I think most of my reluctance is having to scan documents and create that digital filing system. But it has to be better than having tons of paper.

Baz L
Baz L
12 years ago

ING Electric Orange allows you to “send payments”. It later, automatically determines whether the receiver accepts electronic payments or not.

That may be an issue if you need to separate, principal and interest for your mortgage payment.

Now, I’m having a hard time swallowing the $400 scanner. I’m curious, do you use this for anything else other than your new paper-less system? I can’t help but think it’s overkill for monthly scanning of a few docs.

James
James
12 years ago

Before I moved out to attend my first year of college, I opened a bank account with Wells Fargo. I knew from the start that I would want everything to be done electronically. I would not be living at home, so mail would either have to be forwarded from home, or be sent to the dorm mailboxes, and who really trusts the people that manage the mailboxes? Ever since opening that account I have moved away from Wells Fargo and onto ING, where I have my checking and savings accounts. The only caveat is depositing money that isn’t direct deposit,… Read more »

Brack
Brack
12 years ago

Sounds like you’ve got quite a handle on going paperless, J.D. I’ve begun the process, but haven’t gone completely paperless. Thank you for the encouragement to go ahead and improve the process. I’ve got nearly three filing boxes chock full of old receipts, bills, paystubs, etc., whereas I could simply purchase a small flash drive every year and keep the information backed up on it, stored in a fireproof safe. On the mortgage company, as others have said, I think there’s an easy work-around. I have a free checking account at Bank of America, which gives me free Bill Pay,… Read more »

Isaac
Isaac
12 years ago

On the subject of ING and higher yield savings accounts, I decided to check if my bank (Washington Mutual) had anything to offer in response to online banks. Turns out they do — their Online Savings product offers 3.25%! Since I was already a WaMu customer I was able to open the new account and transfer money from my existing savings account without any hassle.

Although I didn’t end up opening an ING account, I can say thanks for motivating me to check out my options.

Rob
Rob
12 years ago

Seeing people use several accounts with one bank for earmarking funds made me want to share a trick I use in Quicken. Quicken has accounts that you can set up called “Savings Goals”. You can earmark funds and transfer them into these virtual accounts from your bank account. You’re not really transferring the money, it’s just an internal transfer. When you reconcile the bank account, Quicken knows the true balance. You can choose to view these transfers in the register or not. However, if you use these accounts, your cash balance on the main page reflects your balance less what… Read more »

Mike S
Mike S
12 years ago

JD, good work! I’ve been paperless for about 2 years now. I use a Sharp AL-1655CS all-in-one laser printer, scanner, etc. I only keep paper for things that REALLY matter now, and shred or recycle the rest, depending on whether there is anything on the document beyond my name and address. I use Quicken and reconcile 2-3 times per week. I use my credit union’s free online billpay for any creditors that won’t pull payments. I reconcile paper receipts against Quicken, then toss them unless I plan to claim business expense, in which case I scan, then toss. I absolutely… Read more »

Justin
Justin
12 years ago

First off, J.D., awesome site. I’ve been reading your postings regularly for about six months now and find it very practical, which is impossible to find when you read information from the professors, analysts, and “experts” that write for the major publications. Simply, Thank you. On Bill Pay: I prefer using free bill pay for every bill, including the one’s available for auto-withdraw. To me, it’s a push vs pull thing. With the convenience of bill pay’s automation features I would rather push (initiate) all my payments/bills rather then all these different entities pulling. It’s consistent so there’s never any… Read more »

Rob
Rob
12 years ago

I forgot…using this Quicken tip also means that you don’t feel tied down to one bank because you have 5 seperate accounts there. You are free to follow the rates if you’d like.

Brian Blake
Brian Blake
12 years ago

JD – consider keeping a savings account that you can access immediately, like your one at the CU. We put our 3-6 months EF in ING, along with our sub-account for general savings. BUT……… If we needed to transfer money in a pinch, we have $1K in a local bank account, and we wouldn’t have to wait 3 days to get it. Now, I know you have credit card(s), but we don’t. We are cash only, which means our “emergencies” are limited to what we have in our EFs. Since becoming DF, we have had to use this mini-EF once,… Read more »

B Smith @ Wealth and Wisdom
B Smith @ Wealth and Wisdom
12 years ago

I’ve never been comfortable going paperless. It seems to add too much complexity to do a simple task. I do use MS Money but still write out the few remaining checks by hand.

That being said, I have gone to paying most of my bills either online or with my credit card. Note: I pay my balance in full every month.

I also turn off paper billing whenever possible. This is mostly because my mailman is semi incompetent. My neighbors and I are getting the wrong mail all the time. The less financial info I have mailed the better!

Caitlin
Caitlin
12 years ago

I can’t believe your mortgage company charges extra for people paying them electronically. How stupid is that? It’s actually easier and more reliable for them to receive electronic payment. In the UK most companies actually charge you more if you don’t pay electronically (preferably by direct debit – ie. automatically) and also if you want a paper bill. I don’t like that they do this but it seems perverse to incentivise people to use cheques.

Charlotte
Charlotte
12 years ago

Wells Fargo (and I’m sure a few other banks) offers Bill Pay for free if you maintain a minimum balance or have direct deposit, etc.

Also, WIN2PDF is a free program to create PDF files from pretty much all formats. I use it when I want to save a file as a permanent document. For example, the confirmation page of an online order or other such receipts.

Chris
Chris
12 years ago

What do people do about protecting the scanned documents? Any type of encryption just worried if someone got they hands on the computer they could have bank account information etc.

Ken
Ken
12 years ago

I’m in the process of migrating my checking from ING to an account at USAA. USAA’s checking doesn’t have a significant interest rate, but on my checking the amount of interest I get even from ING is almost negligible. Here’s why I’m switching: 1) USAA offers a feature called “Depos[email protected]”. If somebody gives me a paper check, I sign it, scan the front and back through the web interface, and it’s automagically deposited. I destroy the physical check and I’m done. (With ING you need to mail in the checks- great possibility for loss and/or fraud) 2) USAA accepts eBills,… Read more »

Julia
Julia
12 years ago

I have a myCash account with Fidelity which has a really decent interest rate, is FDIC insured in a real bank, has free checking, free ATMs everywhere (any fee is refunded), and free billpay. I’m not sure if there is a minimum amount required to have a myCash account as my main investment account is with them. I think the issue with statements and payments (and pre-payments in my case) with mortgage companies is really something to look out for when shopping for a mortgage. Many people only consider closing fees and interest rates, but pre-payment penalties and annoyances in… Read more »

notworriedaboutmoney
notworriedaboutmoney
12 years ago

Excellent post! I also started looking at automating most of my daily routines after realizing that part of simple and frugal living is by optimizing every aspect of our life.

Kym
Kym
12 years ago

My system is similar to yours, JD. I receive electronic statements for electric and cable/internet bills, as well as all of my credit cards and bank accounts. The only things I receive paper statements for are quarterly investment account statements, and monthly rent bill (because they charge for water/trash/sewer on this as well). I have the cable/internet company pull from my credit card (to get the cashback rewards on my card), and the electric company pulls from my checking (cuz they only accept checking accts for auto-billpay). For my credit cards, I set aside the money needed to pay the… Read more »

geek
geek
12 years ago

I am pretty much paperless except for the one or two times a company sends me something via snail mail. All my bills are sent to me via email since I opted for paperless billing. Since my primary email is a gmail account, they are automatically tagged and filed for future reference. I don’t have to worry about backups since all of that info is on Google’s servers. (Yes, I understand that my account could be hacked, exposing my info, etc. but who’s to say your home PC can’t be hacked and main copies and backups destroyed via virus or… Read more »

cv
cv
12 years ago

For the person who asked about file naming conventions, the key is to do year, then month, then day, and to put the date first in the name. Then the filenames will sort chronologically. So 5/20/08 becomes 20080520, or May 2008 is 200805. You can use spaces or dashes to make it easier to read (i.e. 2008 05 20 or 2008-05-20), as long as you’re consistent from month to month.

Kelly
Kelly
12 years ago

Online backups – I’ve been using Carbonite for over a year now and really like it. It’s $50 a year for unlimited backup (they’re currently backing up about 40 gigs for me). It has a small piece of software you install that runs in the background. Once a day it checks for new files or changes to files and sends them up. It’s saved me a time or two as I wrote over prior versions of files. I’m a USAA user too and while [email protected] had its kinks at first I now LOVE it. I just scan in my paycheck… Read more »

Brad
Brad
12 years ago

J.D. Make sure you ask your credit union if there is a “paper-less” credit. Some of the companies that I get electronic statements from give me a $0.50 credit per month, others have planted a tree for me when I’ve switched. Lastly, don’t be loyal to your credit union. Mine didn’t give me an option for a no-fee, high interest savings account. The best they could do was reduce my monthly fee to $8.95 per month unless I kept a $2000 balance. I was tough closing the account because they’re local, courteous, and quick; but in the end I moved… Read more »

Industry and Frugality
Industry and Frugality
12 years ago

I’d like to second the recommendations for USAA. I use ING Direct for long term savings, but all of my checking and insurance goes through USAA. One nice thing is that when I initiate a transfer from ING to USAA through the USAA website, the funds show up in my USAA account immediately. This solves the problem of keeping your emergency fund in an account with a delay in the withdrawal. Also, I have been very happy with the Mozy service (https://mozy.com/?ref=4F64C7). I have 2GB of online backup storage for free, and they offer free software on their site to… Read more »

Brack
Brack
12 years ago

@ Chris: “What do people do about protecting the scanned documents? Any type of encryption just worried if someone got they hands on the computer they could have bank account information etc.” If you take appropriate cautions, you are no worse off than somebody stealing your mail, possibly in better shape. Put a password on your computer to prevent access, make the screen saver automatically log you out, or require a password to gain access, and don’t place your computer in the DMZ on your router… I’d say you have a better chance of getting your paper mail stolen and… Read more »

James
James
12 years ago

To geek from Post 44, I just wanted to say your idea with the Paypal + ING Savings Account is genius. I am just starting to toy with eBay and Paypal and was reluctant to assign my checking account to it. However, I will now be using your method =).

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