Our daughter just turned two years old last month and after a few failed attempts at potty training her we are now determined to get it right this time.  Yesterday had its share of interesting moments, but by the end of the day she really started to figure it out.

For parents who have been through this process before you know how extremely frustrating potty training can be, but when they finally get the hang of things it’s a very rewarding feeling.  Just for fun, this got me thinking about how much personal finance is like potty training.

Sometimes It Can Be A Little Messy

A potty training method that is becoming more popular is to have your child go diaperless.  The theory behind this approach is that they will hate the feeling of wetting their pants, so after just a few accidents they will learn to go on the potty whenever they feel the urge.  Relatives of ours used this approach on their son, and he was potty trained in three days before he was even two years old.  But as you can imagine, things can get pretty messy before they get better.

Sometimes your personal finances can be a little messy too.  Everyone needs to start somewhere.  Maybe you’re up to your eyeballs in credit card debt or student loans, or you felt that you just had to buy a brand new car but can no longer afford the monthly payments, or you’re simply spending more than you earn.

No matter how messy your financial situation is, there are steps you can take to improve your finances and get you headed in the right direction.  Just like with potty training, you might need some help and you’re going to make some mistakes along the way.  But you will continue to make progress every day until it becomes second nature.

Willing To Accept Risk

When your child is running around without a diaper you are taking a risk that your carpet and furniture are just one big accident away from ruin.  If you are willing to take that risk, your return might be a child who is potty trained very quickly.  If you are unwilling to take risks, the rewards will come along eventually but they will be a lot slower.

With personal finance and investing, you need to assess your risk tolerance before you decide how to invest your money.  The highest returns come from the stock market over time, but so do the greatest risks.  Can you handle a stock market correction of 20% or more?  If not, perhaps you will have greater peace of mind with a bond or GIC ladder.

Celebrate Your Success

One of the most common potty training tricks is to make a really big deal when your child uses the potty.  Clapping and cheering, and offering them a cookie or treat can give your child the positive reinforcement they need to keep going.

It’s important to remember to celebrate your success when you reach personal finance milestones.  There’s nothing wrong with rewarding yourself with a nice dinner at your favourite restaurant or with a weekend getaway to Vegas.  As long as you keep your financial goals in mind, a couple of guilty pleasures aren’t going to derail your retirement plans.

Once You Know The Basics You Can Do It Yourself

No child can learn to potty train on their own.  They need someone to guide them along the way and show them what to do.  But once your child gets the hang of potty training they will begin to change their behaviour until it becomes second nature to go all by themselves.

When it comes to personal finance, most people are the same way.  They may start off getting advice from a financial advisor or a trusted friend or family member.  Or they might read financial magazines or personal finance blogs in order to get some basic ideas to improve their finances.

Once you know the basics and have figured out your financial goals, there are plenty of ways to become a do-it-yourself investor.  You can easily set-up a few low cost mutual funds or ETF’s to get started, and then once your portfolio has built up to a sizeable amount you can switch to a discount brokerage and purchase individual stocks.

Personal finance shares a lot of similarities with activities that require patience, consistency and discipline.  Potty training was kind of a fun example for me because we’re going through that process right now with our daughter.  Okay, maybe not a fun example 😉

What can you relate personal finance to in your life?

stock market correction
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