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Tips For Creating the Annual Budget

Making and maintaining a budget is essential to every association's financial success. Here are tips for creating your annual budget.
Staff Writer | Sep 17, 2013 | 3 min read
Person creating HOA annual budget on Macbook

As a dedicated board member of your community association, you understand the significance of managing finances effectively and transparently. The annual budget plays a crucial role in ensuring the smooth operation of your association, allowing you to maintain and enhance the quality of life for all residents.

Creating an annual budget may seem like a daunting task, especially when faced with the diverse needs and expectations of homeowners. However, with the right guidance and knowledge, you can develop a budget that reflects the priorities of your community while remaining financially responsible.

By the end of this blog post, you will have a comprehensive understanding of how to develop a transparent, realistic, and sustainable budget that aligns with the needs and goals of your community.

Prioritize Community Projects

A neighborhood often has several projects coming down the pipe at once, but that doesn’t mean they must be performed and paid for simultaneously. In order to keep assessment fees at a reasonable price and preserve the project fund, prioritize your neighborhood’s projects and perform the most essential ones first.

Calculate Utility Increases

Utility rates typically rise each year, so it is important to include utility rate increases in the assessment fee proposal for 2014. On average, homes and businesses can expect to pay about six percent more for utilities in the coming year. Not accounting for the increase can put neighborhoods in a financial bind.

Review Vendor Contracts

Vendors may be under contract for the coming year, but it is still important to review the contracts to see if rate changes will occur or escalation clauses could be triggered. Communities that use an HOA or condo management company typically have the company acquire this information about vendors.

Review the Landscaping Plan

Landscaping is an expense that you can alter from year to year. For example, if your community has a special project for which it needs additional funds, things such as not planting as many annual flowers as usual and refreshing last year’s mulch instead of laying new mulch can help free up money for the project.

Calculate the Cost of Products

Most communities need certain types of products on an annual basis, such as chlorine for the community swimming pool, trash bags for trash receptacles in common areas, and grass seed for reseeding bare spots in common areas. Buying these types of supplies in bulk will help minimize annual spending.

Cover Insurance Deductibles

Neighborhoods must plan to cover the insurance deductibles for things such as community buildings, community vehicles, and other insured property. Ideally, insurance deductibles should have their own fund and not be taken from a reserve account, which should be used to pay for unforeseeable expenses.

Budget for Reserves

Many neighborhoods don’t keep enough money in the reserve fund. Some HOA management companies recommend putting as much as 20 percent of income in an account that isn’t earmarked for anything. 20 percent is a lot, but a community should put as much income as it reasonably can in general savings.

Start Planning Today

The end of summer is a good time for association-governed communities to start planning next year’s budget. If your neighborhood needs help creating a budget for 2014 that considers the factors above, among others, working with an HOA management company is the best option.

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