(upbeat music) – Okay I’m here with Alexandra and we’re doing another Millennial Money. And very excited about this program so thank you for tuning in. This will be one of 10 and we don’t know which order they’re comin’ in so. What are some of your
questions when people say get out of debt, what comes to your mind? – When people say get out
of debt, I think about credit card debt, the student loan debt, all that negative debt that people use for shopping and personal things. – And is your idea of debt good or bad? – I have a very negative idea
or connotation towards debt and that’s because that’s
what we were taught in the school system and the
traditional education system, that it’s not so great. But because I have, I work
here and I have these resources and I’ve gone to your seminars, I understand that debt can be powerful and it can be used in a good way and it can generate you money. – So for those listening, debt is a four letter word for most people. There are many people in my position, so called financial gurus who
say live totally debt free. And there’s other people who
say cut up your credit cards. And you know that’s good advice
for certain types of people so you should definitely
cut up your credit cards if you don’t know, you
can’t control your spending. You should definitely. But I don’t know how people
live without credit cards, I don’t know how you
can check into a hotel, rent a car, or go shopping, go
out for dinner, you know, so. But you should cut up your credit cards if you’re a shopaholic,
that’s good advice. And the other thing about debt, there’s good debt and bad debt. So this is gonna be the lesson today, is there’s good debt and bad debt. And if you only have bad debt, which I classify student
loan debt as bad debt. The main reason it’s bad debt is because it’s the worst
possible type of debt. You see if I get into trouble
as a business man with debt I can declare bankruptcy and I’m clean. But the trouble with student
loan debt, you can’t do that. You know, it hangs around your neck for the rest of your life. So if you’re a student,
you shouldn’t take on student loan debt unless you
absolutely 100% guaranteed that you will commit to graduating. Have you seen a lot of
kids drop out of school? – Oh yeah. – And so the problem
with student loan debt is a person has to know what
are they going to study. – You know I have two friends,
they’re both medical doctors. And they came out of school
with $500,000 in medical debt, I mean in student loan debt. But they paid it off in five years because they’re medical doctors. They had high paying jobs. And so they delayed having
families and all this and they’re whole objective was to pay for becoming a doctor. But I think you have friends who have no idea what they’re going to school for. – Yes I have this friend
and she’s changed her major like three different times,
from business to now nursing and it’s a lot of money
and she still has no idea what she wants to do and she tells me, she’s like Alex I want to
change my major from Nursing but I’m already practically done and I can’t pay back this debt so she’s stuck with the nursing career and she doesn’t even like it. – You know when I was your age,
like I think I said earlier is that my classmates were
making like 110, 120,000 a year. Which is not much money,
but for my generation if I made 20,000 that was a lot of money. Do you know what I mean?
Is this out of proportion? So we were the highest
paid graduates in the world and my starting pay was
about 47,000 a year. My classmates were making
three times as much as me. But it’s a choice we make, I didn’t really want
to do what they did so. I had to join a labor union. As ships officers we had to join the MM&P, Masters, Mates, and Pilots. Which meant we were labor union guys. So labor union guys make more money and nothing personal but I
don’t want to be a union member. So I joined Standard Oil of California as a shipping officer and then I didn’t have to join the labor union. But I only got 47,000 a year,
that was the difference. The difference is standard
oil was still sailing and a lot of those labor
union jobs are gone because the pay got too high. – You know what I mean, so
there’s always a good and bad and it’s hard to understand
that when you’re younger but I knew when I was 22 years old, I didn’t care if they
paid me 100,000 a year, I wasn’t gonna join a union,
it was just principle. My father, poor dad, was
head of the teacher’s union and for what I saw (laughs) I
didn’t want to be a teacher, I didn’t want to be a union member, so it was kinda youthful
exuberance on things. But anyway, today it’s
harder because you don’t know what is this mysterious high paying job. And even lawyers today
are having a hard time because they don’t need that many lawyers which is a good thing and
there’s artificial intelligence which is replacing a lot
of the high end jobs. Like even accountants today,
they don’t need accountants because artificial intelligence can do a lot of the work for them. So that’s why for your generation, student loan debt I would say is possibly one of the most important
things you need to decide before you take on the debt. Number one are you going to graduate? And number two what are
you going to graduate as? – [Alexandra] Exactly. – Any comments on that,
anything you want to talk about? – So my dream and passion has always been to be an entrepreneur. But when I started studying it, I told my dad it was the
last thing I would ever do because I thought that
what they were teaching me was what I was gonna be
doing on a day-to-day basis. But these teachers don’t,
aren’t actually practicing what they’re teaching and so they give you this wrong conception
of what you’re studying and reality is the traditional
education, it’s obsolete. What mattered back then does not apply to how you’re gonna run your business now. – You know today, if I
was in your position, you know I was pretty
clear when I was about 15, I wanted to sail the
seas, I sailed huge ships you know throughout the world. But that was a dream of a kid, you know. By the time I was 22, I
was tired of it, you know. I didn’t want to sail the world anymore. So I understand you know
what it’s like to keep, what they call it is finding
your way in life, right? – [Alexandra] Yeah. – That’s not easy. So I commend you guys and
that’s why we’re doing the Millennial Money is because
as these programs progress you’re gonna find out, in my opinion, you guys have a harder road
to go through than I did. For me it was really easy,
there was a lot of jobs, economy was booming and all this. And it was easier so you guys
have got to be smarter, okay? So as far as the subject of debt, there’s good debt and bad debt. Again it goes back to
the financial statement, income, expense, asset, liability. So debt falls in here. So I’ll review, let’s say I’m gonna buy you know everybody says
I’m gonna buy a house. And everybody says my house is an asset. That’s not true, your
house is a liability. I don’t care if you put
no debt on it or not, a house is a liability. Same as if you have a car. A car is a liability and
the reason for that is as we’ve talked about earlier, the six words that are basics of financial education,
financial intelligence, income, expense, asset, liability. And the two other words are cash flow. So when you look at the average person to have a job, money comes in here, they pay for their house,
and the money goes to a bank, through a mortgage, so it’s not an asset because the cash is flowing
out, so it’s a liability. So the definition of liability, does it take money from your pocket? And for an asset does it
put money in your pocket? So when I have a rental property here, it puts money in my pocket. So if I live in the house it’s a liability because even if I have no debt on it, I still have taxes, depreciation, repairs and upkeep,
insurance and all this. When I rent a property, I’ve
done a good job buying it and structuring it, every
month it sends me money. So I started off when I was 25, I had a little one bedroom condo and it put 25 bucks in my pocket, it was a start. So this was good debt, you see, the debt also went out and paid but it also put $25 in my pocket. So net, net, I was making
money from my little house. So today my wife and I own 6,500 of ’em. And every month 6,500 houses
put money in my pocket, my people who live in
’em love me and all this because they have a place to live. But all of this comes from debt. So we don’t, we have they’re 100% financed there, it’s all debt. So this is good debt. And what makes it good debt is are the two most important words, cash flow. Does that make sense to you? – [Alexandra] Yeah. – Any comments on this? – So numerous people my age
actually think debt is horrible and you just showed us a
perfect example of cash flow and how debt can generate income. And many entrepreneurs use this formula to make money on a day-to-day basis. – So what most people do is
they have student loan debt, SL, and that debt is going out this way. You know it doesn’t put
any money in your pocket. You can say well I have a job, well there’s still you working for it. So I don’t work for
any of this money here, I do this job once, set the deal up. Every year I add more
and more and more in it, I’m borrowing money from here, it’s coming here, and going this way. So the debt is putting money in my pocket and bad debt is taking
money from my pocket. So the problem is, if
you’re gonna use debt you’ve got to be much smarter
than this person here. You’ve got to be very, very smart. That’s why I took real
estate classes when I was 25 and I’ve never stopped
taking real estate classes. Because you buy a piece of real estate and you make a mistake,
this turns into a liability. And this, if I get, the
renter leaves the place, this goes here that fast
and the cash flows that way. And it’s going out of my pocket. So it has nothing to do with real estate, nothing to do with the car,
that there was student loan. It has to do with these two words here. So good debt again, is
debt when I borrow for this and it puts money in my pocket. If I had a car and I
borrowed money from it and somebody rented from me
as an Uber driver or something and I put money in my
pocket it would be an asset. My wife and I have a boat and
you know most boats lose money but our boat makes money
because it’s in a charter, you know people rent my boat all the time. So it has nothing to
do whether it’s a boat, student loan debt, a
house, a car, or whatever. It has to do with these two words here. And so most of the time, you know you’ve had accounting classes, they don’t talk much about this do they? – This is something they’ve never mentioned to me in college.
– Why is that you think? – Like you mentioned before, I mean, there’s people that are
actually teaching students something that they don’t
apply in their daily life, something that they barely
have knowledge about and they only learned through a textbook. – But you have, you’ve taken
accounting classes right? – Yeah exactly, I did. – You made A’s in it? – Well I did finally get a high grade the second time around but that was because I had a
real accountant teaching me the real applications of accounting. As opposed to a fake teacher, right? So your advisor, Tom Wheelwright
taught me in one hour what I could have learned
the entire semester with this one teacher that wasn’t even an accountant in his real life. – A big lesson for you is
that it’s nothing to do with the house, the car, the student loan, it has to do with
where’s the cash flowing. If the cash is flowing in
to your income statement, into your pocket, it’s
an asset, it’s good debt. But if it’s taking money from
your pocket, it’s bad debt. About debt, there’s
good debt and bad debt. Any comments on that? – Well I think just like Trump, you know how to apply the rules of debt and he calls himself
the king of debt, right? – If you’re gonna be successful at whether you’re employee or entrepreneur, you’ve got to control the
direction of your cash flow. So like most people here,
we’ve talked about earlier, they got a job and the
cash flows out here, it goes to the government, called taxes. Trump doesn’t do this, I
don’t do this, legally. The reason’s ’cause we’re
entrepreneurs, not employees. Employees have this, entrepreneurs don’t. Because it’s a type of asset. Any other thing? – [Alexandra] I’m good. – So what would you like to say to the young millennials
listening to this? – I’d say don’t be afraid of debt and if you know how to use it, use it. – Good debt puts– – Money in your pocket. – Could a credit card be good debt? – Well it just depends what
you spend the money on, right? So if you spent it on something that’s gonna produce income for you, like an asset then it’s good debt but if you spend it on let’s say a jacket that you wanted
from Burberry, then it’s not. – First property there, it was
in Maui, Hawaii, the 1970s. I bought it with a credit card. – Wow. – Property was $18,000 my first, but I’ve taken several real estate classes and so I knew what to look
for, I found this one property. It took a long time, when I found it, I just broke out my
credit card and bought it and it put $25 in my pocket. It went from this little,
janky little thing. This was years ago, $25. It was good debt, I wish
I had never sold it. I don’t, you know it was
a big mistake to sell it because today it’s probably
worth four or 500,000 and that’s a whole ‘nother story. That’s why I don’t flip properties, you know, I don’t like to do that stuff. So anything else, so good debt, what? – Money in your pocket. – And bad debt what? – Takes money out of your pocket. – That’s all there is.
– Yeah. – Thank you.