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