Starting an Electronic Financial Document System

FilingYesterday, I spent several hours setting up an electronic system to maintain most of my records instead of using a filing cabinet system as I described a while back.

How an Electronic Financial Document System Works

Basically, it just means that instead of saving paper copies of your financial records, you save them all electronically, saving only paper copies of the most vital documents. This can save a tremendous amount of space, plus make it much easier than before to find and search through your documents.

Here’s an example: let’s say you wanted to find all of your credit card charges for gas in the last year. With paper records, you’d be going through the filing cabinet for an hour: with an electronic financial document system, you just click a few times and search through a handful of PDF files, retrieving the info you want in just a few minutes.

The Benefits of An Electronic Financial Document System

1. It saves space

Having all of your financial documents in electronic form is a lot more space-efficient than having a filing cabinet.

2. It’s easier to search

Finding the specific information you need in an electronic system is much quicker than in a system of file folders, especially if your question is rather esoteric. This is especially true come tax time. To me, this is the true benefit of electronic financial documents.

3. It’s easier to back up

Backing up an electronic system basically involves a blank DVD and a DVD burner (or even a CD and a CD burner for a small archive). That’s a lot easier than a filing cabinet full of photocopies.

The Drawbacks of an Electronic Financial Document System

1. It takes longer to file things away

When you get a new document, you have to scan it and add it to the system. This can take substantially longer than merely putting it in the appropriate folder in a filing cabinet. This can be mediated, though, by having an efficient system as described below.

2. It’s slightly less reliable

Filing cabinets typically don’t have disk errors. The best thing you can do is to make sure you have a paper copy of everything truly vital and also be sure to have plenty of backups.

3. It’s slightly less secure

You will probably want to have some security on the drive, such as having it attached to your desk with a steel cable or something to that effect, as well as data security software like TrueCrypt. A hard drive is much easier for someone to take than a locked filing cabinet.

What You’ll Need to Start One

Here are the components of the system I’ve set up.

1. A home computer

Yep, that’s the basic piece. A few free USB ports and a CD or DVD burner are also needed peripherals.

2. An external hard drive

Over time, this data will really add up. Plus, you’ll want the ability to easily move this archive to another computer. Thus, I recommend an external USB hard drive for storing this data.

3. A scanner / printer

These may or may not be two separate devices. You’ll obviously also need the software for both.

4. FilingAdobe Acrobat Standard (not Reader)

This is my preferred format for storing the documents. Acrobat does a great job of handling character recognition from your scans, making it possible to do text searches of all of the stuff you scan in. Plus, Acrobat files are quite portable.

5. Blank DVDs

These will be used for backups. I highly recommend monthly backups for all of your data, but especially for this type of data.

How to Set It Up

This is a step-by-step example of how I set up my filing system. Your filing system may differ – the important part is that it makes sense to you.

First, I devoted an entire external hard drive to financial storage. This meant that everything on this external hard drive was nothing but financial documents. It connects via USB and is hidden in a locked desk drawer. I get it out when I need it.

On that drive, I created a series of top level folders for each entity I conduct financial business with. I have an IRS folder for my taxes, a Vanguard folder for my investments, an Alliant Energy folder for my electric bill, and so on.

Within each folder, I have a folder for each month. “December 2006″ and so on. Within each of those folders, I store the actual scanned documents with a filename that includes the date I received it as well as a brief explanation of what it is. So, in Alliant Energy / March 2007, I have a scanned copy of the bill I received during that month as well as a copy of my receipt for the online bill pay.

I also have a series of “shortcut” folders based on year. At the top level of the drive, I have a 2007 folder, and under that folders for each month. Inside of each of those folders is a direct alias to all of the folders on the drive for that month. This saves time in searching for documents.

Actually getting the documents in there is simple. I just scan them directly into Adobe Acrobat, save them appropriately, then shred the document. Once it’s shredded, I save the shreddings for campfire kindling (seriously, shredded documents makes for great kindling). I only save documents of vital importance.

Once you are used to the routine of scanning and shredding, it becomes very simple to archive all pieces of financial information that come your way. I am now actually archiving grocery receipts and so forth to make it easy to analyze my shopping habits.

In short, even though it takes a bit of work, it’s well worth the extra effort because of the constant convenience of having your financial information at your fingertips.

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  1. joewatch says:

    This sounds doable, but I can see paper copies of bills / statements piling up on my desk to waiting to be scanned. I like the fact that a lot of institutions will e-mail you electronic versions of their statements and you can save time by filing these directly into your system.

    By the way, what is a good way to dispose of back-up DVDs with your financial information?

    You should sell your idea on how to organize the system to Adobe or Intuit. I’ll bet you could make the data entry a lot easier by making things menu-driven.

  2. miguel says:

    About Adobe Acrobat –I prefer to use CutePDF writer because it’s free.

    Not a whole lot of people know about this it seems.

    It’s free, with no “created by” water marks of other silly restrictions.

  3. Eric says:

    I am shocked that you would recommend a $300 piece of software to create PDF files. As Miguel mentioned, CutePDF is free.

    What other benefits are there if using Acrobat? I have it on my work PC but never use it for anything but creating the occasional PDF file.

  4. david says:

    I would also suggest a USB Thumb Drive, so you can take all this stuff with you as an extra backup.

  5. Ralthor says:

    Most scanners will come with free software to at least convert to pdfs and if not there is plently of free/open source pdf creation software. I haven’t ever used character recognition and have no idea how well it works or if it even exists in the free products, but you have to ask youself, if that worth $300?

  6. Kirsten says:

    I agree… in my opinion using Adobe is a waste of money. I’m using Foxit Reader and my scanner automatically converts documents into searchable pdfs…

  7. John says:

    I must voice a dissenting opinion. I think David Allen’s GTD system of filing is much more elegant and time-sensitive. Just buy a labeler and a bunch of folders and keep things you need in a general reference filing cabinet. You can have a separate filing cabinet for all things financial. This cuts out the need for scanning documents, which is huge time savings. What do you do if you have a 100 page document that you need to scan? Sure, there are automatic document feeders that cut through that stack relatively quickly. Even so, the label and stick in a filing cabinet is much quicker. The GTD system avoids that problem. In addition, the GTD system allows you to file on the fly. You don’t have to power up your computer/scanner to file something. Just use the labeler, bang out a label, and stick it in your filing cabinet.

    In terms of the benefits you recite of an electronic system, I don’t think these really are benefits relative to a paper system. You can EASILY get by with two filing cabinets whatever the extent of your finances. That is really not very much space to devout. You may be able to search your electronic files more quickly. Or you may not. If you have a well-organized filing cabinet you should be able to find the answer to most questions very quickly–probably quicker than it takes to power up your computer. On an ongoing basis, I think you will expend more time powering up a computer, making sure the file folders are well organized, scanning the documents, titling the documents, etc than you would searching and creating a well-organized filing cabinet. Respecting your point that electronic files are easier to back up, I think this is basically a non-issue for most people. The only reason you generally need to back up is if you fear something will become lost. How do you lose a filing cabinet? I suppose fire is a threat, but you can buy fire retardant filing cabinets. In sum, I’m not convinced.

    I should also say that there is a much better way finding all of your credit card charges for gas in the last year than using paper files or electronic files. Use a program like Quicken or Money. You can create a report in seconds to answer a question like that. Yes, it takes some time to enter the info in Quicken (but less time than you think once you get the hang of it). Yes, the accuracy of Quicken depends on the accuracy of your entries. But since you should be managing your money meticulously anyway, Quicken is a huge time saver.

  8. Columbia says:

    It’s worth checking to see if your bank/credit card/cell phone/stocks/etc offers you the option to download your recent statements. Searchable text, less time scanning, cleaner copy, etc. I’m thinking of making a script to detect the “Your online statement is ready” email and download/file my copy.

    No sense making more work for yourself. If you go completely paperless you can even save a tree or three.

  9. Rick says:

    Kindling….what a great idea. Thanks for the pointers on the e-filing system. And thanks to Miguel for pointing out that CutePDF is free. I’ll try it that way first, then consider purchase the adobe product. That said, how do y’all feel about storing files online?

  10. Justin says:

    Or just skip the scanning and converting to PDF by turning off your paper statements and get online statements; which are all mostly already in PDF format. If not, just use CutePDF to covert them (plus you will will save paper!)

  11. Benji Gonzalez says:

    What shock’s me is that you don’t recommend signing online billing with services that give you a file copy of your bills. Mycheckfree.com for example.

  12. Michael says:

    Great post but I don’t follow you on the system of shortcut folders – could you please explain in a bit more detail how you set this up?

  13. Trent Trent says:

    The big advantage to doing it this way is having the documents be text searchable on your computer, and CutePDF can’t do that. Honestly, I would not bother doing this electronically without the searching feature – that’s what really makes this worthwhile to me.

  14. Trent Trent says:

    With the thumb drive, that would make me very very nervous, because I have a tendency to lose them, and this can contain a lot of personal data. Similarly, I also don’t trust online bill pay systems that aren’t associated with your bank.

  15. Trent Trent says:

    Again, as I said in the article, paper filing IS more convenient when first filing. However, to maintain proper long term records, you end up awash in paper, which is why you would want to scan them.

    Also, there may be free alternatives to Acrobat – I have never had any reason to investigate them because I have had full Acrobat for years, and I’m merely describing the system that I use.

  16. lorax says:

    If you’re using a Mac (hey, they are trendy AND usable) I’d suggest checking out Yep for electronic document organization. It’s iPhoto for documents.

  17. andrew says:

    Trent – what model scanner do you use, and would you recommend it to others?

  18. david says:

    I agree on the scariness of thumb drives…I have a copy in our emergency “bug out bag” along with ne in my work bag. Both are encrypted and only hold the most important info in case I need it right away.

  19. Lynn says:

    For more organization ideas, please check out http://www.theLIFEbinder.com. The L.I.F.E. Binder (Life Information for Emergencies) is system custom designed by you to consolidate all your important financial and legal documents!

  20. plonkee says:

    The drawback to me, is that in the UK due to money laundering regulations if you want to open a new bank account / other financial product, you need to produce proof of address and identity which almost always requires an original paper copy of a bank statement or utility bill less than 3 months old. If I’m going to have to keep paper anyway…

  21. Tim says:

    i’ve been doing this for several years. it doesn’t take time at all. personally, i love acrobat and use acrobat pro, b/c i can scan directly into pdf. cutepdf you have to upgrade to cutepdf pro to have scan ability as well. yes, my MFC comes with software, but it is much slower than using acrobat to scan.

    i keep my files in an encrypted archive on both an external HD and back up to dvd’s monthly in case of HD crashing.

    address verification in the US is the same plonkee, but the operative word is “copy”, which means that if you scan the document it will be a copy and suffice.

    i get all electronic bills, so i can download them as pdf files anyways. moreover, some banks and credit cards offer like $25-$50 for going paperless.

  22. Tim says:

    joewatch, you can shred the dvd/cd or just scrape the foil leaf off of the dvd/cd.

    i would also recommend getting a wiping program for those going to electronic documentation. instead of deleting the file, wipe the file after you are finished using it or storing it somewhere else.

  23. Mitch says:

    Lynn’s system sounds like it might be similar to the Alien Abduction notebook. I think I read about it at Organized Home, but it is similar to other systems (Marla Cilley etc.) in that it has your account numbers, medical info, etc. in it in case you get sick or have to leave town. The idea is that whoever steps in does not have to learn your whole filing system just to keep the household running (so obviously what you have in it will vary according to your lifestyle). I also found it very useful when moving two hours away (lots of trips back and forth over the weekends) to be able to have all that in one little place without wondering which box/city my account numbers were in.

  24. woody says:

    I’ve been doing this for about 3 years now, and have recently scanned and shredded most of my past documents that were stored in paper format. I use a photodoc scanner I got off of e-bay, and store most of the data in a high quality JPEG format. I have a script on a linux system to OCR them and make a text file with the same name so I can scan for text in them.

    I think you missed two of the largest advantages to storing documents this way though: One is that the space it takes to keep documents grows much faster for paper than for data. (10 years of docs fits easily on a DVD.) The second is that you can easily have a copy of your data somewhere safe, like a bank deposit box, without spending a fortune. A house fire no longer means you’ve lost all your paperwork, pictures, and important data.

    One word of advice for those looking to do this though: Make sure you scan at a good quality! (300 dpi minimum, 600 is preferable!) It make take a little more space, but if you need to print copies later you’ll want that density for a good copy. And be careful converting to PDF, as most PDF programs default to convert images down to 100dpi, which is not what you want in this case!

  25. John says:

    Hi,

    I have been using PaperPort from Nuance for a few years and find it very easy to use to both file and search for electronic records. It’s much cheaper than ADOBE, and stores all scans as PDF files.

    It has built-in keyword searching for folders that you set it to manage.

    The other option for searching is the free Windows Desktop Search from Microsoft (which I use) or Google Desktop Search. They can both have filters applied to search PDF documents.

  26. Paula says:

    To destroy a DVD or cd, scratch it up really well with a paper clip end, then cut up the disc.

    How can you know which documents you won’t need the originals for? (Other than automobile titles, and birth certificates)

  27. Tom Purl says:

    This entire process can be implemented on Linux for free. XSane is an excellent document scanning front-end that can be used for the capturing and PDF conversion portions of the process. To index the docs, you can either use a desktop search engine like Beagle or you can use one of the various free OCR programs to index your PDF’s.

    On Windows, I don’t know what you would use for scanning and PDF conversion that would be free, but the free version of the Copernic search engine does an *excellent* job of indexing PDF documents (along with pretty much any other type of office document). So if you can find a free PDF conversion program, then Adobe Acrobat is unnecessary.

  28. For getting rid of old CDs or DVDs with sensitive information (I have about 30 each month to dispose of), you can pick up a cross-cut or confetti shredder (the size of the finished product — I prefer confetti shredders, as the pieces are about 1/8 inch by 1/8 inch in size — and many of the cross-cut and confetti shredders in the $90 to $130 USD price range have a CD/DVD/credit card shredder built-in. Toss through bills with staples and paper clips.

    Then slide through all the CDs and DVDs you need to destroy. The CDs and DVDs come out in strips less than 1/4 inch wide and about 3/4 inch long. One CD takes about two seconds to destroy.

    When you’re done destroying the CDs and DVDs, dump the shards of plastic in a paper bag, shake it really good, then take the contents out and separate the pieces among five or six trash cans. That way, even if someone — such as a government agency — recovered part of the CD or DVD and could somehow manage to recover information, the entire CD or DVD would not be in one place. All the shards would be a mixed lot, which comes up as a blessing in disguise for you.

    As for PDFs, CutePDF is okay. For a freebie, though, pdfFactory from FinePrint.com is best, IMHO. For full functionality, scanning, OCR (opticxal character recognition — or having a program recognize the text in a scanned document, as well as for the best possible security and privacy settings), nothing’s better than the most current version of Adobe Acrobat Professional. Sure, for most people, Adobe Acrobat Standard will be enough. If you’re serious, though, check out Acrobat Pro.

  29. Jeff Kimmey says:

    For those Mac users in the blogosphere, MacWorld’s October issue has an article about going paperless. It is at

    (http://tinyurl.com/25386h)

  30. Steve says:

    For Mac users: you can combine your monthly PDF statements (or any other PDF documents) using Automator. I use this to aggregate a year’s worth of PDF statements into just one PDF file as monthly statements arrive. At the end of the year, I combine this yearlong statement document into a giant PDF of all my historical statements. Keeps things much more organized.

  31. Steve says:

    I get searchable PDF files straight from my scanner software (I use Canon’s Pixma MP500 native software on Mac). Is that what people are referring to when they talk about OCR processing after scanning?

  32. Laptop says:

    I agree on the scariness of thumb drives…I have a copy in our emergency “bug out bag” along with ne in my work bag. Both are encrypted and only hold the most important info in case I need it right away.

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