How can debating be the income ?

What are some of yourquestions when people say get out of debt, what comes to your mind? - When people say get outof 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 ideaor connotation towards debt and that's because that'swhat we were taught in the school system and thetraditional education system, that it's not so great. But because I have, I workhere 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 whosay live totally debt free. And there's other people whosay cut up your credit cards. And you know that's good advicefor certain types of people so you should definitelycut up your credit cards if you don't know, youcan't control your spending. You should definitely. But I don't know how peoplelive without credit cards, I don't know how youcan check into a hotel, rent a car, or go shopping, goout 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 studentloan debt as bad debt. The main reason it's bad debt is because it's the worstpossible type of debt. You see if I get into troubleas a business man with debt I can declare bankruptcy and I'm clean. But the trouble with studentloan 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 youabsolutely 100% guaranteed that you will commit to graduating. Have you seen a lot ofkids drop out of school? - Oh yeah. - And so the problemwith student loan debt is a person has to know whatare they going to study. - You know I have two friends,they're both medical doctors. And they came out of schoolwith $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 havingfamilies 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 friendand she's changed her major like three different times,from business to now nursing and it's a lot of moneyand she still has no idea what she wants to do and she tells me, she's like Alex I want tochange 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 weremaking 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 highestpaid graduates in the world and my starting pay wasabout 47,000 a year. My classmates were makingthree times as much as me. But it's a choice we make, I didn't really wantto 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 Idon'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 standardoil was still sailing and a lot of those laborunion jobs are gone because the pay got too high. - You know what I mean, sothere's always a good and bad and it's hard to understandthat when you're younger but I knew when I was 22 years old, I didn't care if theypaid me 100,000 a year, I wasn't gonna join a union,it was just principle. My father, poor dad, washead of the teacher's union and for what I saw (laughs) Ididn't want to be a teacher, I didn't want to be a union member, so it was kinda youthfulexuberance on things. But anyway, today it'sharder because you don't know what is this mysterious high paying job. And even lawyers todayare having a hard time because they don't need that many lawyers which is a good thing andthere's artificial intelligence which is replacing a lotof 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 importantthings you need to decide before you take on the debt. Number one are you going to graduate? And number two what areyou going to graduate as? -  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 thelast thing I would ever do because I thought thatwhat they were teaching me was what I was gonna bedoing 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 conceptionof what you're studying and reality is the traditionaleducation, it's obsolete. What mattered back then does not apply to how you're gonna run your business now. - You know today, if Iwas in your position, you know I was prettyclear when I was about 15, I wanted to sail theseas, 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, Iwas tired of it, you know. I didn't want to sail the world anymore. So I understand you knowwhat it's like to keep, what they call it is findingyour way in life, right? - [Alexandra] Yeah. - That's not easy. So I commend you guys andthat's why we're doing the Millennial Money is becauseas these programs progress you're gonna find out, in my opinion, you guys have a harder roadto 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 guyshave got to be smarter, okay? So as far as the subject of debt, there's good debt and bad debt. Again it goes back tothe 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 saysI'm gonna buy a house. And everybody says my house is an asset. That's not true, yourhouse is a liability. I don't care if you putno debt on it or not, a house is a liability.

 Same as if you have a car. A car is a liability andthe 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 flowingout, so it's a liability. So the definition of liability, does it take money from your pocket? And for an asset does itput 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'vedone a good job buying it and structuring it, everymonth 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 makingmoney from my little house. So today my wife and I own 6,500 of 'em. And every month 6,500 housesput 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? -  Yeah. - Any comments on this? - So numerous people my ageactually think debt is horrible and you just showed us aperfect 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 isthey have student loan debt, SL, and that debt is going out this way. You know it doesn't putany 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 forany of this money here, I do this job once, set the deal up. Every year I add moreand 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 takingmoney from my pocket. So the problem is, ifyou're gonna use debt you've got to be much smarterthan this person here. You've got to be very, very smart. That's why I took realestate classes when I was 25 and I've never stoppedtaking 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, therenter leaves the place, this goes here that fastand 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, isdebt when I borrow for this and it puts money in my pocket. If I had a car and Iborrowed money from it and somebody rented from meas an Uber driver or something and I put money in mypocket it would be an asset. My wife and I have a boat andyou know most boats lose money but our boat makes moneybecause it's in a charter, you know people rent my boat all the time. So it has nothing todo whether it's a boat, student loan debt, ahouse, 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 areactually teaching students something that they don'tapply in their daily life, something that they barelyhave knowledge about and they only learned through a textbook. - But you have, you've takenaccounting 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 areal accountant teaching me the real applications of accounting.

 As opposed to a fake teacher, right? So your advisor, Tom Wheelwrighttaught me in one hour what I could have learnedthe entire semester with this one teacher that wasn't even an accountant in his real life. - A big lesson for you isthat it's nothing to do with the house, the car, the student loan, it has to do withwhere's the cash flowing. If the cash is flowing into your income statement, into your pocket, it'san asset, it's good debt. But if it's taking money fromyour pocket, it's bad debt. About debt, there'sgood 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 himselfthe king of debt, right? - If you're gonna be successful at whether you're employee or entrepreneur, you've got to control thedirection of your cash flow. So like most people here,we've talked about earlier, they got a job and thecash flows out here, it goes to the government, called taxes. Trump doesn't do this, Idon't do this, legally.

 The reason's 'cause we'reentrepreneurs, not employees. Employees have this, entrepreneurs don't. Because it's a type of asset. Any other thing? -  I'm good. - So what would you like to say to the young millennialslistening 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 whatyou 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 wantedfrom Burberry, then it's not. - First property there, it wasin 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 lookfor, I found this one property. It took a long time, when I found it, I just broke out mycredit 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 wishI had never sold it. I don't, you know it wasa big mistake to sell it because today it's probablyworth 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.