Two Reasons Why Home Builders Emphasise the Importance of Contingency Funds
Sometimes, people who want to have homes built will pour every single dollar they have into their construction project, instead of using some of it to make a contingency fund. This is a very risky move that home builders will almost always try to dissuade their clients from making. Here are two reasons why home builders strongly recommend that their clients set up this type of fund.
A natural disaster could damage the construction materials and the site
If a natural disaster, such as a flood or an earthquake, occurs at the site where a person's home is being constructed, their half-built home and any construction materials they had been storing on this site could end up ruined. If the site owner or their home builder has some form of construction insurance that covers the expenses associated with this incident, then the owner might think that this policy will give them all the financial protection they need.
However, the problem with relying solely on their insurance and not bothering to put any money into a contingency fund is that if their site and materials are destroyed by a natural disaster, it might take weeks or months for their insurer to give them their payout that will enable their builder to repair the site and replace all of their lost materials. If the insurance payout arrives too late (i.e. at a point when the builder is due to start work on another client's home), then the site owner might have to abandon their project until the builder becomes available again.
Conversely, if in the aftermath of a natural disaster, The homeowner can withdraw money from their contingency fund and use this to deal with the immediate financial ramifications of this incident; they could afford to finish off their home and then could top up their contingency fund when they receive their insurance payout.
An attempted break-in could result in the site owners having to ramp up their security
If a construction site is in a safe area, where break-ins rarely occur, then a site owner might make the decision not to spend any of their project funds on security. This is not always a bad decision. However, if a person decides to take this risk when having a house constructed, their home builder will usually advise them against taking the additional risk of choosing not to have a contingency fund. The reason for this is as follows; a break-in can happen anywhere, including in supposedly safe neighbourhoods.
If an unsuccessful break-in occurs, the site owner might have to ramp up their security, in order to stop those who originally made this attempt from trying to do it a second time. This might mean erecting a solid fence, as well as installing cameras and setting up an alarm system. Without a contingency fund, they might not have the spare money they need for these items, which could then result in those who tried to break into the site the first time successfully gaining entry on their second attempt and then stealing a lot of expensive building equipment. The loss of this equipment could, in turn, could throw a spanner in the works of the site owner's construction project.