There is a difference between liquid and volatile. Index funds are definitely a liquid instrument, but they are very volatile. For funds that you know you will

There is a difference between liquid and volatile. Index funds are definitely a liquid instrument, but they are very volatile. For funds that you know you will need in the next six months to three years, it is recommended to keep the funds in a liquid and very stable investment. Personally, I use a California (I live in CA) tax free short term bond fund. What type of expenses do I keep in this kind of fund? Tax payments I know I already owe (capital gains from an IPO for example), child's college tuition payments, planned major house repairs / remodels, pending car purchases, and as others have mentioned six months of living expenses in case of layoff or other emergencies.