Just tossing around the idea of different flavors of emergency funds…
Everyone is in agreement that you should have one. Possibly with the exception of extreme investor types like Mr. Money Mustache, who believes that a single dollar not put to investing work is wasted money. He recommends, if you own your home, to use your home equity line of credit as your potential emergency fund if anything should go wrong.
That actually got me thinking: can an emergency fund also do investment work for you? The only requirement of emergency funds is that they are liquid and available any time. There must be something better than dumping it in dusty savings. I heard Suze Orman recommend using the Roth IRA as a sort of emergency fund – because you can take out what you put in at any time. But come Loan Payoff Day, I will be able to save more than $5500 per year (the current annual limit for Roth IRA contributions). So I would rather shovel the money into another vehicle and be done with it once it hits $20k or so, fulfilling EF needs.
Why Vanguard? I don’t know. It’s an index fund I have heard many different PF realm folks talk about. It indexes the entire S&P and generally keeps up with overall market by virtue of its averaging nature. I have also heard that 401k funds (and possibly Roth IRA?) often do not keep up with the market. So for a retrievable place to put my money for lightweight investment, I would aim for a hands-off “tracking to market” investment. Beyond that I would try to make my money do better than the market average, but more on that another time 🙂