Personal Equity

“In order to develop capacity, families and communities must accumulate assets and invest for long-term goals. “ (Michael Sherraden)

“When we look at assets rather than just earnings, we recognize that financial resources beyond a weekly paycheck are an essential building block of a family’s capacity to better itself, create and take advantage of opportunities, feel secure economically and take risks, and identify itself. Most Americans survive on their incomes while assets feed dreams of a better life, offer hope for the future, and are the key resources for launching upward mobility, as well as providing important real and psychological safety nets. Focusing on assets also allows us to consider how the historical legacy of the past acts upon the present and, possibly, the future. …families use their assets to build and maintain adequate standards of living … and they attempt to secure advantageous opportunities for them and their children” (Thomas M. Shapiro)

“Ownership of assets leads to at least nine positive effects, including (1) household stability, (2) an orientation towards the future, (3) development of other assets, (4) focus and specialization, (5) risk taking, (6) personal efficacy, (7) social influence, (8) political participation, and (9) the welfare of future generations.” (Michael Sherraden)

“Income from a job helps you to survive in the slow lanes and side roads of life while personal equity will set you on the path of upward mobility, provide access to the fast tracks and highways of life as well as the necessary propulsion required for liftoff into space if necessary.” (MCWB Club)

“While income feeds people’s stomachs …., ….assets change their heads” (Michael Sherraden)

But seek ye first the kingdom of God, and His righteousness; and all these things shall be added unto you.” Matthew 6:33 (KJV)


The last quote above (in bold type font, immediately preceding this paragraph) is from the Bible and is a fundamental piece of modern Christianity. If one may attempt to coin a similar phrase for the conventional wisdom on middle class financial well being, it would be something like ‘… seek ye first academic type education and certifications, a good job, buy a nice personal residence, save adequately for your kids’ education as well as retirement and you will live happily ever after’.

Our (Middle Class Wealth Builder’s or MCWB’s) version of a similar phrase for aspiring middle class wealth builders would however be ‘…seek ye first to build Personal Equity, and all other things shall be added unto you’.

If you ask the average middle class Jane about her personal equity, her mind is very likely going to zero in on the current equity in her home. A smaller (savvier) number may immediately think of their stock (share) holdings in public and/or private companies. If however you ask middle class Joe about his retirement savings, that is a term he is very familiar with (even if he has none). This is just another example of the wealthy few controlling the thought process (and by extension, the  current and future living standards) of the helpless majority.

On a different page, we have laid out our thoughts on the concept (mirage) of retirement savings and why we think it is a bad idea for an aspiring middle class wealth builder (MCWB). In basic terms, personal equity is meant for current, ongoing and future consumption – the owner/holder also has an obligation to pass it on to successors (heirs) with minimal leakage (to taxes, costs and other parasites); at least this is what every average informed member of the wealthy few seeks to achieve on a daily basis. Retirement savings on the other hand is meant for future consumption (which means the saver is less likely to question current under-performance, misappropriation or outright theft), is going to be spent and withdrawn (in many jurisdictions/countries, if not all) according to government rules, is set up as a cash cow for financial institutions, brokers, the government and is very difficult to pass on to successors (heirs) without significant reduction (taxes, costs, fees and so on).

What Is Personal Equity (PE)?

PE is the sum total of wealth building property (income/cash generating assets) possessed by each person. No one should be without it – those who lack it will always be at the mercy of those who have it. This is how the wealthy few have come to control the lives of the helpless majority – they have personal equity that is more than sufficient for their needs.

Think of PE as ownership (whole or fractional) of the goose that lays the golden eggs as opposed to the golden eggs; or gold mine as  opposed to gold bars. You could also think of it as ownership (or part ownership) of a crude oil well as opposed to barrels of crude oil. It’s like the quote about giving a man a piece of fish being equivalent to a day’s worth of food while teaching him to fish is equivalent to a lifetime’s worth of food. PE goes a step further in that when that fisherman dies, he’s no longer able to provide fish for his heirs (except they are also fishermen – even then, they still have to go out and work to get fish), PE on the other hand is a gift that keeps on giving after the demise of the original holder as long as all the right structures are in place.

In focusing on academic (and/or trade) type education/certification and securing a job, the middle class by default are limited to golden eggs, gold bars or crude oil barrels (see the preceding paragraph) while the wealthy few have always (relentlessly) focused on ownership (and/or control) of the crude oil well , gold mine and the goose that lays the golden eggs.

If you were asked to choose between being paid all the dividends of Royal Dutch Shell Group or British Petroleum – each of which paid out whooping sums in excess of US$10 Billion for the financial year ended December 2009 – and control of the corporation, which would you choose? The uninformed (sadly – many in the middle class fall into this category because they are used to being paid wages/salaries/fees) may well choose the ten billion dollars – to their own detriment. The informed (most, if not all, of the wealthy few are in this category) on the other hand know that the best choice is control of the corporation. Why? The ones in charge of the corporation get to decide whether any dividends are paid at all and reserve the  right to pay zero dividends.

In areas where there is a shortage of child care spaces or providers, middle class families know they have to put their child’s name on the waiting list as soon as a pregnancy is confirmed – this is how important personal equity should be. The process of building PE should start as soon as a pregnancy is confirmed. For those without kids, and who don’t currently have PE, the process should start today.

For the aspiring MCWB, PE is the way out of the rat race of life (in which the rats are endlessly trying to exit a maze, unsuccessfully) as well as the key to financial freedom from the tyranny of (and/or slavery to) the wealthy few.

Within the limits of their resources and the child’s ability, a typical middle class family pulls out all the stops to secure the best (academic type) education for their kids along with extracurricular activities (swimming, ballet/dancing, piano, soccer, football, hockey, martial arts etc) with a view to positioning the kid for maximum success in life (getting the best job in the marketplace). By not building PE as aggressively for both the parents and the kids however, the middle class sets itself up for the possibility (likelihood) of financial struggle down the line as wages either decline (up to and including the possibility of outright job loss) or fail to increase as fast as inflation erodes purchasing power.

The beauty of PE is that everyone can and should be able to build it in proportion to their means (the status quo financial structures in place don’t necessarily encourage this nor are they geared towards best results for the majority) until such a time as the returns (cash flow) from PE equal or exceed the wage/salary from one’s day job (this could take many years or even decades for most, but it can and should be done) – this is the point of financial independence. Indeed, it is interesting to note that the poorer one is, the easier it is to achieve financial independence – higher paid folks pay more in taxes plus have so much more in expenses (in order to keep up appearances or maintain social standing). Regardless, all middle class folks should strive to build PE aggressively with a stated goal of attaining financial independence.

Thankfully, PE (properly structured) enjoys the benefit of compounding, structural loopholes in the tax law (tax deferrals for instance) that wages/salaries could never match as well as a built in inflation hedge.

Components of a good PE structure could include ownership interests in public companies, private companies, commercial real estate (not personal residences), copper/gold/uranium/zinc/silver mines, oil and gas wells, TV productions, movies, to mention a few. In general, we don’t consider a personal residence (even if the mortgage is paid off or it is owned free and clear) a component of PE (except it is cash generating in a material way) – you are almost always better off classifying your personal residence as an expense.

How does an aspiring MCWB (Middle Class Wealth Builder) go about building PE (Personal Equity)? We think a good starting point is to join the MCWB (Middle Class Wealth Builders’) Club. Why? Because the regular financial institutions don’t present their best opportunities to MCFs (middle class folks) – only to wealthy clients. When MCFs pool their resources together through the MCWB Club, the pool (not any of the individuals that make it up) becomes a wealthy client and secures access (you could argue through the back door) to the world’s best opportunities for MCFs who would ordinarily not have had a place at the table. After joining, consider using the Tell-A-Friend tool at the bottom of this page to invite a friend, colleague or family member because the more members we have, the ‘wealthier’ the pool (of funds) would be; always remember that the best opportunities are reserved for the wealthiest clients.