How to Budget for the Unexpected?

There are generally two main ways that Associations budget for the unexpected. 

Set up a contingency account

The first way is to actually set up a category called contingency or some similar term. What the amount of that contingency is may depend on the circumstances of your Association.

Include contingencies within each component of the budget

The second way to plan for the unexpected is to include contingencies within each component of the budget. For example, if the Association feels that $100,000 is needed in Landscape Expenses for the upcoming year, they may budget $105,000 (or add in a 5% contingency factor). This then is done for most, if not all, of the categories.

What is a recommended accumulated contingency balance (usually shown as Operating Fund/Equity)?

We recommend 1-3 months of operating expenses. This is consistent with other industry standards. California Department of Real Estate sets the amount at 3 - 5% of the gross assessments. CAI - National recommends a minimum of 2 - 5% of the annual assessments with 10 - 15% being very good.