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What is the most cost efective way to invest the "Income Cushion",treasuries or short and mid term bonds Vangaurd Index Funds?

What do you mean by "cost-effective"? Do you mean "having the potential to earn you the most interest" or "being guaranteed to be there when I need it"?

If the latter, then NEITHER of your choices fit. Selling or redeeming a bond before maturity may possibly give you less than you started out with. And bond mutual funds never mature.

As someone else mentioned, a ladder of treasuries maturing every few months is one way to do it, but then you have to put up with not being able to get all your money out at once if need be.

The only way to have complete control of your money is to put it in a money market at a bank or mutual fund.

[P.S. Most people around here refer to the "income cushion" as the "emergency fund".]
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