The lessons I learned from reading The Richest Man in Babylon were only the first small taste of managing my finances, but they led me to that ‘a-ha’ moment of understanding that I had 100 per cent control over where I chose to spend my money.

To gain control of my finances, I followed in Arkad’s — the richest man in Babylon’s — steps. I reverse-engineered a budget, starting with my net pay of $1200 per week. I put aside 10 per cent as savings to invest in my future, channelling it into a savings account. I set up an automated transfer: on payday, $120 was transferred into that account. It was paid every second Friday, the morning after my fortnightly pay was deposited into my bank account.

$1200 per week

less $120

= $1080

That left me with $1080 a week to spend on what I needed. My most pressing need was paying off what I considered to be my bad debt — the $307-per-week student loan repayment. So, I set up another automated transfer — out it went, the day after I was paid.

$1080 per week

less $307

= $773

That left me with a balance of $773 to spend each week. My next needs were groceries, petrol and mobile phone. I needed to eat, get to and from work and, in this day and age, communicate with people. I calculated these costs at $170 per week but didn't set them up as an automatic transfer because most would be paid using my debit card (or direct debited from my account).

$773 per week

less $170

= $603

I was living with my uncle Jimmy at the time and we would drive to work together most mornings, stopping to get a coffee along the way. I'd started sharing my little budget project with him and he helped me with a crucial part.

‘What about the one-off bills that come during the year? You can't forget them,’ he said.

The truth was I had. You can predict some of those larger one-off payments, such as the cost of car registration, but others, such as dental treatment, can't be predicted.

I was planning a holiday with friends at the end of the year and to move into a property that would need a rental bond and some furniture, so I bundled all those lump sums into a single expense pool, allocating a total of $7280 across the year (or $140 per week).

$603 per week

less $140

= $463

This left me with $463 per week. All that was left to allocate was discretionary spending and rent (to Jimmy, until I found a place to move into). Discretional spending came first: $200 a week for coffee, eating out, beers and entertainment. Jimmy, a master budgeter, gave me the best advice of all. He suggested I take out $200 cash at the start of every weekend and make it last until the same time the following week. Tap and go, or contactless payment, was around then, but not nearly as prevalent as today. However, it was available at all the bars and restaurants — the places where I could probably do the most damage if I got carried away. That's what made the suggestion of using cash so helpful. While tap and go is certainly convenient, it's next to impossible to keep track of what you spend. By using cash, I had to be much more disciplined. When it was gone, it was gone. Look at the empty wallet for the evidence!

$463 per week

less $200

= $263

There it was: $263 left over each week. That's what I could afford on the last thing I would have to pay: rent for a roof over my head! The $263 would also have to cover all the usual household costs: electricity, water, internet, and so on.

I found a townhouse in the area I wanted to live in. It was a bit smaller than I would have liked and I didn't have my own bathroom, but it was within my budget.

These calculations took me roughly an hour, but it was one of the most productive hours I've ever spent. I've told a lot of people about this little hack over the years. It's not a hard and fast formula and can be easily manipulated and changed.

Of course, my ‘needs’ (and order of priority) may be different from yours. Many people would allocate rent before discretionary spending, instead opting to live off whatever was left over, but the same principles apply. Others would be quick to point out that I should allocate less money for discretionary spending and more money for clothing. My priority, outside the necessities (like a roof over my head) was paying off my student loan because, as I've mentioned already, it was bad debt. For others, the equivalent would be their mortgage because, technically, that too is bad debt: although there may be capital growth, there's also no income and the loan interest isn't tax deductible.

I know some people prefer to put the one-off expenses at the bottom of the pile and then decide whether they will take on financial commitments such as private health care. Others prefer a more simple 50/30/20 rule — 50 per cent on needs, 30 per cent on wants and 20 per cent on savings or bad debts. It doesn't really matter — the important thing is that you run through the exercise and cover all the categories, but only after you've put aside the 10 per cent for your future self. I guarantee that the process and the formula work — you feel far more in control after just one hour by tallying up the figures over a cup of tea or coffee.

Don't worry if you don't get all of this just yet. What's important at this stage is that you take the first step. Invest an hour of your time to ensure you have a method of spending less than you earn. You'll get better with time and experience, and you can always come back and read this chapter again if you need to.