I used to hear this advice a lot: "Build equity, not cash." Especially from thinkers like Naval Ravikant. Until I built my own start up, I had little appreciation for this advice. Let us understand what is the real meaning of this advice.

Let us say you work for a company. The company is doing very well. Customers love the company's product. The company is experiencing a massive increase in revenue.

In case you are working only for the salary, the growth of the company does not have any impact on how much money you make. Your earnings are limited to your salary. You may be getting some bonus, but it will also be capped at a percentage of the salary.

On the other hand, if you have accepted some equity instead of or in addition to your slary, you will also ride the wave with your company. When your company is doing well, your equity also inreases in value proportionally. The downside is also true: if the company does not do well, your equity may become worthless.

The act of owning stocks in a company is referred as building equity.

The company could be your own company or you may be compensated in stocks for your services in a company. You need to own stocks if you want to ride the wave.

If the company is your own, you have significant influence on the success of the company. If you make the value of the company grow, the value of your equity in the company also grows up. In fact, this is what attracts so many people to build or join a start up.