Personal Finance Organization For Smarties

This is not a post for dummies or idiots: this is for smart people who want to take control of their personal finances. I’m inspired to start a series on personal and small business productivity based on the positive response to my post on a paperless small office – I use exactly the same methods for keeping paperless personal files as well, so that’s a good place to start.

This post is about keeping your personal finances organized, not about budgeting or investing (which you can read about in a variety of other places), so covers more about the paperwork and tracking of finances.

Here’s how I keep my personal finances organized:

  • I use credit or debit cards for almost all purchases. Since these transactions are downloaded and categorized (see next point), it lets me see exactly what I’m spending on what. If you’re going to do any budgeting, this is essential.
  • I enter/download every financial transaction into Quicken. You can use a different package, but my point is, get it all in one place. I’ve been using Quicken for many years, and once I got over the initial chore of setting up my accounts and got into the routine of updating it frequently, it’s become my primary source for information about my finances as well as a huge timesaver when I’m doing monthly expense reports and annual tax returns. It tracks my bank accounts, credit cards, investment accounts (both taxable and retirement), lines of credit, money owing to/from my small business, and even my assets such as my condo. It’s really valuable for seeing when I need to move funds from one account to another, such as from a savings account to a brokerage account to make a new investment. One thing that I do not track is what I do with cash once I withdraw it from the bank: I just show the withdrawal transaction. I’m not that anal, and since I use credit or debit for most purchases, my cash spending is pretty minimal.
  • I monitor my finances frequently, usually only spending a few minutes at a time. Once I was organized, it was really easy to just start monitoring any changes to my finances:
    • I download bank and credit card transactions directly from my banking site into Quicken and check for any unusual transactions every couple of days, rather than waiting for my monthly statement. Several years ago, when I was just moving back from the US to Canada, this helped me spot a forged cheque drawn on my US bank account and uncover the underlying identity theft before it could spread, all within two days of the cheque being cashed. Recently, although this is quite rare, I found a duplicate transaction for an airport limousine service on my credit card, which I then called Visa and had reversed. If I hadn’t been tracking the transactions, and had a way to search through old transactions, I likely wouldn’t have noticed the transaction on my monthly statement since I take a lot of airport limos and occasionally misplace receipts.
    • I apply meaningful categories to transactions in Quicken. Since this is my primary source of financial information, I make sure that (for example) a business expense on my personal credit card is categorized as such, so that I will catch it in my month-end expense report. Quicken is smart enough to auto-categorize transactions that it recognizes when downloading, so it knows that a charge from Fido is a business telecommunications expense, not a personal expense.
    • I enter investment transactions manually (my discount brokerage doesn’t support manual downloads of these) at least once a week. If I actively make a trade, then I enter it immediately, but I use the other times to record things such as dividends and fees on my accounts. When I notice that the cash balance of any investment accounts gets above $100 from accrued dividends, I immediately reinvest it into a money market fund since my brokerage doesn’t pay interest on a cash balance, which earns me a bit of extra cash each month.
  • I reconcile my investment accounts to the monthly statements. Although I regularly enter transactions, I still reconcile to the statement since it allows me to compare the number of shares/units held of an investment as of the statement date, to ensure that I didn’t miss any transactions during manual entry. I don’t do this with bank statements, since I have them set to auto-reconcile every time transactions are downloaded, which alerts me to any difference between the online and Quicken balance.
  • I use automated debit for recurring payments whenever possible. This includes everything from property taxes to phone bills to my credit card, which I pay in full every month. I set these up as recurring payments in Quicken, which then reminds me when these are coming up in case I need to move funds around to cover payments. I never pay late fees or interest charges because I forgot to pay something on time.
  • I track expenses as they occur, and capture the receipts. I use a spreadsheet for tracking business expenses, although there are a number of good applications out there such as Expensify. I haven’t found one that’s quite flexible enough for me, since I often have multiple currencies as well as monthly recurring expenses such as internet. If a receipt is available online (usually), I download it right away, or I scan the paper receipt. By the time I get to the end of the month, usually all I need to do is check Quicken for any business expenses that I might have missed (I have a custom report saved in Quicken to display transactions from the business expense categories), create a PDF of the expense report and attach the scanned (or downloaded) PDF receipts. For personal expenses, I only scan the paperwork if I might need it, such as for a product warranty. An example: today, I received my property tax bill in the mail. It’s already set up for pre-authorized monthly payments, so I opened Quicken and added the five recurring payments noted on the bill: they will automatically show up as a reminder in my Quicken cheque register three days before the automatic payment is made, giving me time to transfer funds if I need to. I then scanned the bill, added the resulting PDF document to my condo tax folder, and shredded the document. Total time, less than five minutes, and this was a complicated transaction because it involved recurring payments for a half-year of taxes. I also discovered by reading a bill insert that I can receive future tax bills via, so I signed up for that: from now on, I’ll receive my tax bills electronically and won’t need to scan them.
  • I use online money transfers for one-off payments whenever possible. Between this and using credit/debit, I no longer write personal cheques. I have some stashed away just in case, but typically only use them as proof of my banking information when I’m setting up for automated debits. It’s easier than writing cheques, and all the details of the transaction are right there in my bank account and downloaded to Quicken for easy tracking.

A huge part of my personal finance organization is around my use of Quicken. I also use QuickBooks for my small business, since it has better accounting features such proper double-entry accounting and a general journal, but that is completely separate from my personal finances since my company is incorporated. Transactions between myself and my company – payroll and expenses – are the same as with any employee and business, although the timing of my paycheque is a bit more sporadic. I do most of my company purchasing using my personal credit card (for the airline points) and submit an expense report each month.

As with the paperless office (and home) methods that I discussed in the previous post, this might seem a bit daunting to start. There’s really just two things to do, however: first, start changing habits to use direct debit, online payments and the other paperless (and automated) techniques; this is a one-time effort, probably spread over a couple of months as you figure out where all your transactions are occurring. Second, start using personal finance software such as Quicken by picking a point in time – like January 1st – and entering your account balances as of that date, then all new transactions from that date forward; there’s an initial effort to set this up, but then it’s just a matter of setting aside 30 minutes each week to download or enter new transactions, and reconcile accounts.

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