YOUR MONEY: Using my tax-free savings to restore an emergency fund

Question:

Along with investing R3,000 in my tax-free account every month, I also invest a sizeable amount offshore. We’ve had a few unforeseen expenses recently which have reduced my emergency fund. My plan is to sell half my offshore investment to rebuild my emergency fund. I was also toying with the idea of pausing my offshore investment entirely until I’ve rebuilt my emergency fund. Which is the better option?

— A Facebook Fat Wallet Community member

Answer:

We'd suggest you halt offshore investments for a few months and use this cash to rebuild your emergency fund. The problem with selling the offshore investments is that this could trigger a tax event (capital gains tax), as well as fees on the transaction and then, of course, fees in returning the money back into rand.

What’s more, if you have a need for your emergency fund while rebuilding it you still have the option of selling some offshore assets to help out — the above caveats notwithstanding.

A last point: you never mentioned withdrawing money from your tax-free account, which is totally correct. With the lifetime limits imposed (R500,000) you really don’t want to be taking out money from there because the withdrawal doesn’t reset the limit — so you have a lower limit for the rest of your investment life.

— Your Money team 

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