Financial Stability: Keys to Building Wealth for the Family

Financial stability means having a positive cash flow, no harmful debt, an emergency fund, and public and workplace benefits.

In order to build wealth, families need to have little or no debt, an emergency fund, investable money, and confidence in their skills as an investor, according to a report.

Note that it’s important to prioritize paying off debt and building up an emergency fund first before using leftover money to invest.


Wealth, simply put, is a measure of the value of assets, minus any debts and liabilities, that a person owns.

You can calculate your wealth by taking the value of your assets (i.e. car, home, investments in a brokerage account) and subtracting your debts (like a mortgage, student loans, and medical bills).

Building wealth may be a far-off thought for many of those struggling with medical debt, student loans, rising rent prices and inflation. However, knowing how families can grow wealth is key to understanding why so many families are struggling to build wealth in the first place.

It is important for families to have wealth and to generate more of it. Here are a variety of reasons.


Holding wealth promotes financial resilience so families can quickly pick themselves back up after an unexpected event like a job loss or car accident.

Families need to have a positive cash flow or income that regularly exceeds the value of their expenses, and little or no debt, whether that’s a medical, credit card, or student loan debt.

With the rising interest rate hikes in 2022, families should prepare to potentially owe slightly more interest on their debt in the coming months.


While there are many methods for paying down your debt, it’s important to find which one works best for you. Two popular processes for debt repayment are the snowball and avalanche methods.

The avalanche method is good for people who want to save the most money in their debt repayment journey. With this system, individuals prioritize paying off their high-interest debt first.

With the snowball method allocate extra money towards paying off the smallest amount of debt first. While this might not save you as much money as the avalanche method, researchers found that this practice is more likely to keep people motivated to pay off debt because it makes them feel like they’re achieving small wins.


The next step to achieving financial stability is building up your emergency fund. The tried and true wisdom around emergency funds is saving three to six months’ worth of expenses.

A study showed that low-income families who had just one month’s worth of expenses saved were less likely to fall behind on paying the debt in the future

If you have money left over after you’ve made your debt payments, try allocating some of that money towards your emergency fund.

You’ll want to save your money in a checking, savings, or high-yield savings account, so you can easily access it in case of an emergency.


Once you’ve started saving for retirement, you might be interested in making more substantial investments.

Having ‘consumer-friendly financing options’ means having access to favorable loan terms, whether that’s on a mortgage or a car loan. In order to get lower interest rates on your debt, you need a good credit score.

Banks, credit card issuers and landlords use credit scores as a measure of how likely an individual is to pay off their debt so the better the credit score, the better terms you’ll get on your loans.

For example, the FICO credit score considers five factors when building your credit score: Payment history, the total amount you owe, the length of your credit history, new credit, and your credit mix.

In order to achieve a good credit score, you’ll want to pay off your bills on time and in full, keep your credit utilization low (the ratio of credit you use to the amount you’re extended), have a long credit history, and have different types of credit.


Once a family has achieved financial stability by paying off their debt and building up their emergency savings, they must have leftover money to invest.

Having investable money is the first condition for building wealth while having access to affordable assets is the second.

These assets may be real estate, post-secondary education or financial assets like stocks or index funds.

If you’ve never invested before, you’re not alone.

Many personal finance experts recommend investing 15 to 20% of your annual income for retirement or other purposes, but if you’re not able to contribute that much, try a smaller amount, like 3%, and slowly increase it over time.

After you’ve started saving for retirement, you are ready to move on to other types of investments.


The final condition for wealth building is wealth protection. Wealth protection refers to the ability of families to protect and maintain their wealth over time.

Financial experts endorse wealth protection solutions like mortgage forbearance, and property tax circuit breakers, which limit the percentage of income someone spends on property tax and having emergency savings.

With a high-yield savings account, you’ll earn more interest on your deposits than you would with a traditional checking or savings account.

Workplace benefits — including paid parental leave, paid sick leave and retirement benefits are important to ensure financial stability for families. 

Without these programs, many low- and middle-income families may have difficulty maintaining a positive cash flow when financial hardships happen.


Last but not least, wealth can also improve your physical and mental health — having chronic medical conditions or disabilities and getting treatment can be costly.

Having money can make it easier to afford healthcare or relieve the mental stress that comes along with being in a bad financial situation.

Families also use wealth to help give future generations a leg up through properties, inheritances, or investments.

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