We all have ‘Oh shit!’ moments. I remember one very vividly. It was the day I received a letter from the ANZ Bank advising that I had to start making repayments on the student loan I had taken out a couple of years earlier. The way the loan was structured — part of a special arrangement between the bank and Bond University — allowed students to pay nothing until they graduated and moved into the workforce. It sounded like a wonderful deal at the time, but for several years the interest had been accumulating at 11 per cent. Now, the monthly repayment was $1330 (or $307 per week).

‘Oh shit!’

By that stage, I had graduated with degrees in law and accounting on the Gold Coast and moved north to work out of the JLF offices in Brisbane. After agreeing to take on some additional responsibilities, I was employed full time on a salary of $80 000. That was the higher end of what a law and accounting graduate might expect to earn in their first year out of university, but it was also about 50 per cent less than my predecessor had been paid. Nevertheless, I was perfectly happy, given my lack of experience.

On paper, life looked good and, for the most part, it was. I was living with my uncle Jimmy and aunt Gayle at their home in Chandler while I found my bearings in Brisbane. But, despite their homely, supportive living environment, I still felt stressed. After tax, I was earning about $1200 per week (a bit more than 25 per cent of my salary went towards paying off my student loan). I had no idea how I was going to make those payments while saving for a rental property bond so I could move out on my own. I was also learning how expensive it is being an adult, thanks to car registration and operating costs, phone bills, insurance, doctors, dentists, groceries and a range of everyday miscellaneous expenses.

Around this time, Dad loaned me a copy of Robert Kiyosaki's book Rich Dad, Poor Dad. Written in 1997, it's still regarded as one of the best books on money management ever published. One of its key messages is understanding the difference between good and bad debt. Good debt earns you an income or improves your wealth position, an example being debt on an investment property generating (rental) income and increasing in value. Bad debt is borrowing money to buy a car, an investment which, while incurring interest, depreciates in value over the course of the loan (unless of course you buy a rare collector's car or you're driving for Uber!).

It's a wonderful book and recommended reading, regardless of where you are on your financial journey. The problem was, after reading it I realised my student loan was bad debt. Granted, I had invested in my education and, in that sense, it was money well spent on building future earning capacity, but right now the loan wasn't generating income and it was costing me money. Cue: anxiety. I began waking up at 2 am, stressed that I had made the decision to take on the debt, stressed that I wouldn't have enough money to make the repayments and stressed about how much of my income I was wasting on 11 per cent interest.

With the benefit of hindsight, I realise I was being quite irrational. My anxiety was related to the fact that I didn't have control of my financial position. I didn't know whether I had enough money to cover my expenses and I didn't understand where my money was going on a weekly basis. Uncertainty is uncomfortable but not uncommon.

The CBA research I flagged in the introduction to this book suggests that one in three Australians spend more than they earn each month and one in two don't have enough savings to handle a temporary loss of income. A further one in three admit they would be unable to find $500 in case of an emergency and the 2016 MLC report I referred to in the introduction indicates that half of all working Australians live payday to payday. Based on these spending habits, we collectively have somewhere between one-third and one-half of Australians without enough money to get them through to their next payday — and that doesn't include unexpected events or emergencies. These figures give some insight into the financial stress the COVID-19 pandemic caused many Australians, given the job losses, stand downs and closure of many businesses.

Life-changing lessons

Fortuitously, not long after I read Rich Dad, Poor Dad, my uncle John presented me with a copy of The Richest Man in Babylon, an iconic book written by George S. Clason that's like a very early version of the current money bible, Scott Pape's The Barefoot Investor. A timeless classic — first published in 1926 — it's written as a parable told through the eyes of an impoverished boy, Arkad, who, despite a challenging beginning, becomes the richest man in ancient Babylon.

Two key messages in the book literally changed my life and gave me the tools to gain financial control.

The first is to save 10 per cent of your pay and put it towards growing your wealth. Clason explained it a little more elaborately: ‘Start thy purse to fattening, for every ten coins thou placest within thy purse, take out for use but nine. Thy purse will start to fatten at once and its increasing weight will feel good in thy hand and bring satisfaction to thy soul.’

In archaic language, Clason was proposing the allocation of 10 per cent of each pay cheque to your future self and doing so before you spend a single cent. It might sound simple, but most people manage their finances in the reverse order: they meet their various expenses, then endeavour to save what's left. Clason's methodology is certainly not taught at school. Even in my business accounting degree we worked out income, then expenses and then determined profit. Profit can be taken as a dividend or reinvested. The same is true for household budgets: we use our income to pay expenses, then figure out what's left. If we're struggling to save, we look to cut expenses.

The second life-changing takeaway for me was ‘Make thy gold multiply’. Roughly translated, it means having the discipline to invest the 10 per cent you set aside each week not just once, but repeatedly. That's the multiplier effect. Or, in Clason's classical words: ‘The earnings it will make shall build our fortunes … learn to make your treasure work for you. Make it your slave. Make its children and its children's children work for you.’

Think of the analogy of an apple tree. At first, you plant one tree. As that tree grows, it produces apples. Rather than eating the fruit, you instead plant the apples. The seeds in those apples eventually grow into more apple trees and as the process continues, you are eventually blessed with a whole orchard!

The other major thrust of Clason's wonderful story is spending money on what you need, rather than what you want. ‘The gold we may retain from our earnings is but the start,’ he writes. ‘What each of us call our “necessary expenses” will always grow to equal our incomes unless we protest to the contrary … confuse not the necessary expenses with thy desires.’ That part hit me straight between the eyes. The message was clear: we will always spend as much as we earn, unless we make a clear and conscious decision to determine whether an expense is something we ‘need’ or simply something we ‘desire’. We need food, water and a roof over our heads. We don't need an Xbox, a clothes dryer or a new car.

Of course, there are plenty of grey areas — that is, purchases that sit somewhere in between. But the basic tenet still stands: we have control over how much we spend, but only if we make a conscious and deliberate decision to delineate between ‘needs’ and ‘desires’. Yes, it's easier said than done, but it was the message I needed to hear, particularly at that pivotal time. It reminded me of the power of choice: did I want to play the role of victim or victor? Throughout life, we will all find ourselves in unenviable positions but, in most instances (certainly not all), we have the freedom to go down a different path, to choose to make change.

Over time, Uncle John would teach me a lot more about seeing the world with a ‘needs’ versus ‘desires’ lens.