Emergency Fund

Break the Debt Cycle Start an Emergency Fund, The Cash Ladder Concept

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Cash is king, and know where is it more important than when you start your journey to becoming debt free.  In fact, if you’re in debt and cashless, I would argue that saving money is the most important aspect of the journey.  Some call it an emergency fund, money for a rainy day, or emergency reserves.  Regardless of the term used, the ability to save money quickly for an emergency is an important step to breaking the debt cycle. Consider the FTP Cash Ladder concept when planning your emergency fund.



Break the Debt Cycle Start an Emergency Fund, The Cash Ladder Concept



No Emergency Fund, Stay in Debt

Regardless of how hard you focus on paying off your debt, one of the primary reasons people stay in debt is because they don’t have enough savings to pay for emergencies. If you don’t have any savings then that next vehicle repair or doctor’s visit could force you to accumulate more debt.  It’s an endless cycle.  Work hard to pay off your debt, have an emergency and take on more debt.  To break this cycle you have to be able to accumulate an emergency fund as quickly as possible.


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Break the Debt Cycle Start an Emergency Fund – The Cash Ladder Concept


Think about an emergency fund as a ladder. A Cash Ladder.  The FTP Cash Ladder consists of three different levels; $500, $1,000, and $1,500.  As you save money and reach each level of the Cash Ladder you begin to minimize your risk of accumulating more debt.  Each level on the Cash Ladder was established based on common events that could come up unexpectedly on a day to day basis.

  • Save $500. Covers the typical cost of minor maintenance on your vehicle.
  • Save $1,000. Protect yourself from an unplanned doctor’s visit.
  • Save $1,500. Guard against home repairs to your furnace or water heater.

The sooner you can reach the $1,500 level, the faster you reduce your need to use a credit card, take out a loan, or ask family members for help.  After you reach the $1,500 level, keep saving.  The more cash you have in the bank, the stronger your financial position for life’s unexpected events.





How to Build Your Emergency Fund Fast – Break the Debt Cycle

Depending on your individual situation there may be a number of creative ways you can accumulate additional cash.  Here are a few common strategies that you can implement quickly.

  1. If you have established a monthly budget as part of your routine to pay off debt, review your budget to see if there are any additional areas you can cut back on to save cash. For example:  dining out, lowering the thermostat, or giving up cable T.V. for three months.  Every little bit helps and moves you further up the Cash Ladder.
  2. Additional hours at work or a temporary job. Probably not the most appealing option, however, if you have the capacity to pick up additional work this is the fastest way to accumulate additional cash.  Remember, we’re not talking about working two jobs the rest of your life, we’re talking about accumulating cash fast so you can achieve your Cash Ladder milestones.
  3. Sell something, anything. That additional TV you don’t use much, the clothes your kids have outgrown, or the second set of silverware you got from Aunt Polly for Christmas last year – the one you really don’t need.  Whatever it is, use it to boost your savings account.
  4. Birthdays, tax refunds, that unexpected raise or bonus from work, are other options for improving your emergency fund.

Remember, the faster you can climb the Cash Ladder the better you position yourself to break the debt cycle, and getting out of debt forever.

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How do you save cash for an emergency fund?  Add your comments below.


Kevin is the owner of FTP and the author of the personal finance book series Filling The Pig. He uses his past successes and failures with debt, saving cash, investing and running home-based businesses to educate others about successful money managment and Creating a Lifestyle of Opportunities.

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