Financial Mindset Over Financial Literacy

Financial Literacy Month is almost over. Now, it’s time to focus on financial mindset. 

When I left my lucrative corporate job to go back to Boyle Heights in the early 1990s to help my community eradicate generational poverty, I was ready to share all I’d learned about financial literacy. But I quickly realized the reasons the community remained stuck when it came to their finances wasn’t because of a lack of financial literacy. Rather, it was about harmful financial mindsets, such as: 

• The belief that you are “poor Latinos.” 
• That you can’t save for retirement because you’re living paycheck to paycheck. 
• That other people will take care of you. 
• That storing money is better than investing money. 
• Your friends are good sources of financial advice. 
• Your finances are not in your control.                                                                                                                                                                                                                                                                                                                           

My clients in the community were hard-working and dedicated, supporting themselves and their families, but at the beginning of their journey to financial greatness, they weren’t considering how to make the best use of their money because of these damaging mindsets. 

When it comes to shifting your financial mindset to combat all of these limiting beliefs, it comes down to knowing that we are in control. I like to use the Responsibility Formula for this. 

The Responsibility Formula 

The Responsibility Formula was developed by Dr. Robert Resnick and popularized by author and speaker Jack Canfield, best known as being the co-author of the Chicken Soup for the Soul series. 

The Responsibility Formula is a powerful way to shift your mindset from scarcity to abundance. The formula is: E+R=O

• E is the Event: something happens in your life.
• R is your Reaction or Response to the event.
• O is the Outcome: the result you get.

You can’t always control what happens, but you absolutely can control how you respond to it. And that is the magic of the Responsibility Formula. When you take responsibility for your responses, you empower yourself to create positive outcomes, no matter the circumstances.

How Does the Responsibility Formula Work? 

Let me break further break down how to use the formula with some examples:

E – Event: These are the things that happen in your life. It could be an unexpected bill, a health challenge, or an argument with a loved one. Events are often out of your control.

R – Reaction or Response: This is where your power lies. You can either react impulsively based on old habits and emotions, or you can take a moment to respond thoughtfully, choosing an action aligned with your goals.

O – Outcome: The outcome is the result of your reaction or response. When you react, the outcome is usually negative. When you respond, the outcome is often more positive, leading to growth and success.

By understanding this formula, you can start taking responsibility for the outcomes in your life. Instead of blaming circumstances, you shift your focus to controlling your responses.

Change Your Beliefs with the Formula 

Look at the results you’ve been getting in your finances and ask yourself: is this what I want? Am I making the kind of money I want to make? Am I experiencing the kind of abundance I want to experience? 

If the answer is no to those questions, then go back to some of the limiting beliefs you have and start to examine ways in which they are not true using the Responsibility Formula. 

For example, this is what is happening when you’re reacting: 

Event: I am living paycheck to paycheck 

Reaction: I don’t put any money away for retirement. 

Outcome: I have no savings in retirement. 

For example, if you believe you can’t possibly save for retirement, you can use the formula to shift from reaction to response and eliminate this belief in this way: 

Event: I am living paycheck to paycheck. 

Response: I automatically put away 10 to 20 percent of my paycheck in an investment vehicle like a 401(k), IRA, or Roth IRA before I do anything else or pay anything else. 

Outcome: I am making progress toward building a retirement fund. 

Not working on taking responsibility for changing your negative mindsets is a recipe for failure. These types of negative money mindsets will hold you back from achieving what you want and living the life you dream of living. If you need individualized advice, let’s talk!