Building a House or Paying School Fees? Watch Out for This Budget Mistake

Kenyans who have built houses or undertaken construction projects know one hard truth: unexpected costs are almost guaranteed. A fundi suddenly needs extra materials, a design tweak requires new fittings, or prices change mid-project.

The same applies to school expenses, especially for boarding schools. Just when you think everything is settled, a last-minute shopping list pops up,  a mattress upgrade, extra books, or a forgotten uniform item that must be bought immediately.

Whether you are building your dream home, paying school fees, or planning a major purchase like a car, one common mistake can quickly throw your finances off track: failing to set aside a contingency fund.

A contingency fund is simply a financial cushion reserved for surprises. And as many Kenyans know too well, life rarely follows a neat budget. Without a buffer, these shocks often push people into high-interest loans, mobile money borrowing, or dipping into savings meant for rent, food, or investments, turning manageable expenses into financial stress.

Why a Contingency Fund Matters

Imagine you’re building a house. You budget carefully for materials, labor, and finishes. Then the fundi asks for a special material you hadn’t planned for, or your design changes require new fixtures.

Suddenly, your Ksh2 million budget starts looking like Ksh 2.2 million. Without a contingency fund, your options are limited: borrow, delay the project, or compromise on quality.

A contingency fund prevents panic borrowing. It keeps your plans on track even when surprises appear, ensuring your project or payment schedules continue smoothly.

How to Set Up a Contingency Fund

Setting up a contingency fund isn’t complicated, but it requires discipline. Here’s a practical guide:

1. Allocate 10–20% of Your Total Budget

The general rule is to set aside 10–20% of your total project or monthly budget. For example, if building a house costs Ksh2 million, allocate Ksh200,000–400,000 for unforeseen expenses.
For school expenses, if your back-to-school budget is Ksh60,000, consider setting aside Ksh6,000 for unexpected shopping requirements that your child may forget as they report to school.

2. Use It Only for Unforeseen Expenses

A contingency fund is not an excuse to overspend or splurge. It should be used only when the unexpected occurs, for instance, when there is a need for extra materials or labour during construction.

Routine or planned expenses should come from your regular budget. Using the fund for normal spending defeats its purpose and leaves you exposed when real emergencies strike.

3. Keep It Separate

To avoid the temptation of spending, keep your contingency fund in a separate, easily accessible account.

You can decide to put the money in a separate Money Market Fund (MMF) account, where withdrawal is faster or instant. The goal is to ensure that when the unexpected happens, the money is available immediately without you having to scramble.

Tips to Grow Your Contingency Fund

1. Start small, but start early: Even Ksh1,000–5,000 per month grows over time.
2. Automate savings: Set a standing order or auto-save into a separate account.
3. Review your fund periodically: Adjust the amount as your project progresses or costs increase.
4. Stay disciplined: Remember, it’s for surprises, not lifestyle upgrades.