HOW DEBT CAN GENERATE INCOME -ROBERT KIYOSAKI

Summary

In this episode of Millennial Money, Alexandra and the host explore the concept of 'good debt' versus 'bad debt.' They discuss how traditional education often portrays all debt negatively, but the host explains that debt can be a powerful tool when used correctly to generate income. The conversation delves into the importance of understanding cash flow and making informed decisions about taking on debt, especially student loans. The host shares personal anecdotes and emphasizes the value of financial education beyond textbooks, advocating for smart debt management as a key to financial success.

Takeaways

• 💡 Debt can be viewed as both good and bad, depending on how it's used and its impact on cash flow.
• 🏦 Student loan debt is often considered 'bad debt' because it's difficult to discharge and doesn't generate income.
• 💼 It's crucial for students to be certain of their career path before taking on student loan debt.
• 💰 High-paying jobs, like those of medical doctors, can help quickly pay off significant student loan debt.
• 🚫 The advice to cut up credit cards is suitable for individuals who struggle with uncontrollable spending.
• 🏠 A house is considered a liability, not an asset, because it typically involves cash outflow for expenses like taxes and maintenance.
• 📈 Good debt is when borrowed money is used to acquire assets that generate income, improving cash flow.
• 💼 Entrepreneurs and investors, like Trump, strategically use debt to acquire assets that produce income, avoiding negative cash flow.
• 🎓 Traditional education may not fully prepare students for real-world financial management, especially regarding debt.
• 💼 The importance of continuous learning and practical knowledge in financial areas like real estate is emphasized.
• 🌟 The power of debt lies in its ability to be transformed into an income-generating asset, which requires smart financial management.

Q & A

What is the main difference between good debt and bad debt as discussed in the script?

Good debt is debt that generates income or puts money in your pocket, while bad debt takes money out of your pocket without generating income.

Why does Alexandra have a negative connotation towards debt initially?

Alexandra initially has a negative connotation towards debt because that's what she was taught in the traditional education system, which generally views debt as something not so great.

What advice does the speaker give to students considering taking on student loan debt?

The speaker advises students to only take on student loan debt if they are 100% committed to graduating and have a clear plan for how they will use their education to secure a high-paying job to repay the debt.

How does the speaker differentiate between an asset and a liability?

The speaker differentiates between an asset and a liability based on cash flow. An asset puts money in your pocket, while a liability takes money out of your pocket.

What is the speaker's view on using credit cards?

The speaker believes credit cards can be both good and bad depending on how they are used. If used to purchase assets that generate income, they can be good debt. However, if used for personal spending that doesn't generate income, they contribute to bad debt.

Why does the speaker consider student loan debt as bad debt?

The speaker considers student loan debt as bad debt because it is non-dischargeable in bankruptcy and can follow a person for life, especially if the education does not lead to a high-paying job that can service the debt.

What example does the speaker give to illustrate good debt?

The speaker gives the example of buying a rental property with a credit card in Maui, Hawaii, in the 1970s, which generated a positive cash flow of $25 per month, thus making it good debt.

What is the importance of cash flow in determining whether debt is good or bad?

Cash flow is crucial in determining the quality of debt because it indicates whether the debt is generating income (good debt) or causing financial outflow without returns (bad debt).

How does the speaker suggest millennials should approach debt?

The speaker suggests that millennials should not be afraid of debt if they understand how to use it wisely. They should focus on directing cash flow into their pockets by investing in assets that generate income.

What is the role of education in the speaker's perspective on debt?

The speaker implies that traditional education may not provide practical knowledge on financial matters like the use of debt. He suggests that real-world experience and continuous learning, such as taking real estate classes, are essential for understanding and managing debt effectively.

What is the speaker's opinion on the current job market and its impact on student loan debt?

The speaker believes that the current job market is more competitive and that certain professions, like lawyers and accountants, are being affected by automation. This makes the decision to take on student loan debt even more critical, as job security and income potential are less predictable.