I have my nozzle close to the substrate that I am printing on, so that a piece of paper can just about slide underneath it freely, without catching.
Is this the right way to do it?
Using a piece of paper won't guarantee you get exactly the "correct" height (because different papers have different thicknesses, and it's hard to determine exactly when it no longer catches on the nozzle) but it gets the bed level and the distance will be close to correct.
You can then further adjust the height by observing the first layer and making adjustments based on whether you see the first layer being squished down enough or too much. The babystepping feature (if enabled) is very useful for this.