The A4 Test of your Personal Finance

The A4 Test for your Personal Finance

by

Hoarders

That’s the word that defines some investors.

You will know what I mean once you know what their personal finance and investment portfolio contains.

Count the number of mutual funds in their portfolio – 20, 30, 40 upto 50 sometimes.

Then the number of stocks in their portfolio – anywhere from 20 to 100.

A whole lot of insurance policies – from a few to a dozen.

Add to all this the Bank Fixed Deposits, PPF, EPF, NSCs, Bonds, etc.

They have been literally hoarding.

It’s utterly complex.

If all these items are listed on paper, one will need several sheets.

Why do we make life so complicated? Is this greed? Is this ignorance? Effect of having several advisors? Or these investors have a different formula that appears to work for them?

I have not been able to find an answer to this puzzle.

Read more: The Acid Test of your Investment Portfolio

The question now is if this is complex, what is simple?

In case of personal finance, the golden rule that I follow is “Less is more.” In my view, there is no special benefit that one derives with ‘more’ products in the personal finance basket. A few well considered investment products driven by an investment plan are sufficient to fulfil one’s financial goals.

OK, but how much is more?

Let’s take a test.

The A4 Test of Personal Finance

I believe any individual’s personal finance product list should be just enough to fit on an A4 sheet of paper. An A4 sheet is what is normally used with a printer.

Today, apply this test to yourself.

  1. Take an A4 sheet of paper or more if you have to.
  2. Write down, and I insist you write, all your personal finance items one by one including insurance, investments (stocks, mutual funds, NSC, EPF/PPF, FDs), loans, assets such as home, car, etc.
  3. Once you are done, hold the sheet(s) in front of your eyes.

What do you see? Feel?

This exercise is likely to do three things for you. 

One, if you need more than one sheet, it shows you haven’t thought through as to how your money should be put to work. You have a vast selection of products, mostly random, driven by equally random advice or consideration. There is no thought of best fit.

Two, the A4 sheet will act as a boundary for you. You will have to now evaluate every action related to your money in terms of – Should you add that one more investment or insurance to your portfolio or not?

Three, it brings to the fore the areas you need to work on. You might have a lot of insurance policies which you do not need. You might have too many mutual funds or stocks. Your loans may exceed the value of your assets. Time to work on them.

Make the A4 Sheet your Personal Finance Account Dashboard

The specific asset or loan or investment may be different for different individuals, yet thinking in terms of containing it all in a single A4 sheet will make you question your own thought process and find the right reasons to have any personal finance product.

Remember, at all times, this A4 sheet is where all your personal finance items should fit in. It’s your dashboard.

Here’s a sample A4 sheet of Personal Finance:

Personal Finance Account

Don’t try to fill the sheet in the font size of Terms & Conditions pages of a credit card. 🙂

Read more: The Ultimate Money and Investing Checklist

Between you and me: Is a single A4 sheet enough for you? What did you discover about your personal finances? I look forward to your comments.

4 thoughts on “The A4 Test for your Personal Finance”

  1. hello sir,

    Thanks for your quick support for my previous queries.as a new comer in mf i am very confused so i have written again some queries for help….

    1) i have applied for ekyc (aadhar based) and verified.should i submit doc. for ekyc at any office.pl clarify.
    2) i filled up online form for CAN at MFU site.can i should submit ekyc doc.(which i received from camskra in a pdf ) along with the all doc.
    3) is regular plan have both types (commission based or without commission).if yes pl share details.
    4) pl elaborate – Direct – Growth and Direct – Dividend scheme.

    • No, you need not submit any document to any office regarding your eKYC. The information will be picked up on the basis of your PAN. Regular plan is the commission type plan. There is no non commission type plan. The non commission one is called Direct plan.

      Hope this clarifies.

  2. A quarter of A4 sheet.
    One large cap and small cap mutual fund along with a small fixed deposit. 1 term insurance and 1 health insurance. That’s it for me and I am really happy with my decision.

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