The mustachian idea is to keep money working for you, each dollar is an employee and needs to be at at work not lounging around in savings.
Even if you use a credit card, you have a month to pay it off, interest free ... Even if you have to pay a bit of interest, you'l have made much more interest in the meantime having those funds invested, that it's worth not having idle cash (for anyone not living close to the edge - i.e. with sufficient lack of debts, good savings/investments, etc.)
My wife and I took out a HELOC while paying down our mortgage just in case we faced an emergency expense that we couldn't cover with monthly income & cash on hand. Now that the mortgage is paid in full (got the payoff notification in the mail this morning!), we were thinking of building a 6 month emergency fund and putting it in a high yield savings or money market account. This is what a number of sources strongly encouraged, including YMOYL.
But combine the information from the thread (that, hopefully, I'm understanding correctly) with some details about our own situation: a) our post-mortgage monthly income is able to cover approx half of our planned emergency fund, b) we have a lot of credit available between our credit cards and the HELOC to cover just about any foreseeable emergency expense, c) any emergency expenses that we can't cover with monthly income & immediate cash on hand will very likely be infrequent and rare, and d) the money will very likely earn more in an investment with a higher potential yield. Even if the investment vehicle isn't as liquid as a savings account, it's just got to be liquid enough to cash in either before the end of the month or at least before the debt interest eats too far into the returns earned from the bond fund (which would take awhile). There is risk involved here, but it's minor, especially compared to the opportunity cost of
not investing the money in a potentially higher earning investment.
As an example, assume a $10,000 "emergency fund" that earns 4% in a bond ETF and 1.5% in a savings account. After three years, a $2,500 emergency arises. During that time, the investment would have grown to $11,248.64 in the bond fund and $10,456.78 in the savings account. Suppose that it takes one month to receive the money from the bond fund. You'd pay off the debt in full after that month, but with interest of $10.94 and a total expense of $2510.94. That takes the "emergency fund" down to $8,737.70. Meanwhile, since you'd have gotten immediate access to the funds in the savings account, you'd be able to pay off the debt without incurring any interest, taking the "emergency fund" down to $7,956.78. So even though the total cost is lower, you'd have $780.92 less than if you'd have invested the money in a bond fund.
In this situation, then, and in situations like this, it makes better financial sense to forego setting aside money in a savings/money market account as an emergency fund and instead take on a higher yield investment, even if it's a bit more illiquid.
Of course, you've totally screwed yourself over if, say, you're given 24 hours to pay a $10,000 ransom. :-P
Anyway, this thread helped a lot to see we can and very likely will earn more by foregoing the emergency fund. Thanks for the insight, guys!