- 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.