Financial Word of the Day: Equity
- Larry Jones
- 3 days ago
- 2 min read
If you want to build real wealth, you need to understand one word: equity. It’s simple. It’s powerful. And it quietly determines who’s actually getting ahead financially—and who’s just making payments.
Let’s break it down.
Definition: What Is Equity?
Equity is the value you truly own in an asset after subtracting what you owe.
In plain English: Equity = Asset Value – Liabilities (Debt)
If you own something and you still owe money on it, your equity is the portion that’s actually yours.
Example #1: Home Equity
Let’s say your home is worth $400,000. You still owe $250,000 on your mortgage. Your equity?
$400,000 – $250,000 = $150,000 in equity
That $150,000 represents your ownership stake in the property. If you sold the home for $400,000 and paid off the mortgage, that’s the amount (before fees and taxes) that would be yours.
This is why homeowners talk about “building equity.” Each payment reduces debt and increases ownership.
Example #2: Stock Market Equity
When you buy shares of a company, you’re buying equity in that business.
If you own 100 shares of a company trading at $50 per share, you own $5,000 worth of equity in that company.
As the company grows and the stock price increases, your equity grows. If the business declines, your equity shrinks.
Ownership equals upside.
How It’s Used in Conversation
You might hear someone say:
“I’ve built a lot of equity in my home over the past five years.”
“I want to invest in businesses where I can own equity instead of just earning a salary.”
“Private equity firms buy companies, improve them, and sell them for a profit.”
Every time you hear the word, think: ownership stake.
Why Equity Matters
This is where things get real.
Most people focus on income. Wealthy people focus on equity.
Income pays the bills. Equity builds net worth.
If all you ever do is earn and spend, you’ll stay on a treadmill. But when you consistently acquire equity—whether in real estate, businesses, or investments—you create assets that grow beyond your effort.
Equity works while you sleep. It appreciates. It produces dividends. It increases your net worth.
That’s how wealth compounds.
Equity vs. Cash Flow
Here’s a helpful distinction:
Cash flow = money coming in regularly.
Equity = ownership value building over time.
The sweet spot? Assets that give you both.
For example, a rental property may produce monthly cash flow AND build equity as tenants help pay down the loan.
That’s a powerful combination.
The Bottom Line
If you want to “speak the language of money,” you must start thinking like an owner.
Ask yourself:
Where am I building equity?
What assets do I actually own?
Am I increasing my ownership stake each year?
Wealth is rarely built by accident. It’s built by intentionally acquiring and growing equity.
Today’s challenge: identify one area of your financial life where you can start shifting from just earning income… to building ownership.
Because ownership changes everything.
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