How Does The Board Come Up With An HOA Budget?

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An HOA budget is important in maintaining the community’s financial health. Without it, the HOA may be unable to fund its regular maintenance activities. How does the board manage to create an accurate one every year? Let’s examine the steps to create an HOA annual budget.

What Is an HOA Budget?

An HOA budget, also known as the HOA operating budget or annual budget, is the financial plan that forecasts the community’s income and expenditures for the fiscal year. It allows the association to allocate its financial resources to various activities such as maintenance and necessary repairs. Moreover, it helps them determine how much to charge the homeowners in HOA assessments. 

Parts of an HOA Budget

Like any financial plan, a homeowners association budget has several parts. These parts can be divided into two overarching categories: income and expenses. 

Income Sources

Homeowners associations need an income source to fund their operations. Typically, this comes in the form of homeowner assessment fees, which are the monthly assessments homeowners are required to pay the HOA. These fees also include other necessary fees, such as special assessments.

Apart from assessments, HOAs may also earn money from other revenue streams. For example, the HOA may charge for services and amenities such as gym use or landscaping. The HOA may even charge event fees and earn income from renting common areas. Moreover, many communities earn money through fines for HOA violations.


HOAs have three main expenses to account for in the budget: operational costs, reserve funds, and community improvements. Operational costs include everyday expenditures like utilities, management fees, insurance, and cleaning. 

Meanwhile, the reserve funds are set aside for major expenditures outside of regular operations, such as major repairs, upgrades, and replacements. They also exist to fund emergencies to avoid special assessments.

Lastly, communities must fund HOA improvements that will enhance the community’s living experience. This includes anything from gym renovations to new facilities like pools or co-working spaces. 

How to Plan an HOA Budget

HOA budgeting can be overwhelming, especially for communities without experience with HOA financial planning. However, it can be made easier if we break the process down into several key steps. 

1. Form a Committee

Homeowners associations often create a dedicated budget or financial committee that creates the budget. Typically, this includes the HOA treasurer and several community volunteers who are well-versed in financial management. It also includes a representative from the HOA management company, if applicable. 

2. Set an HOA Budget Meeting

With the team assembled, it’s time to schedule a dedicated meeting to plan the budget. Set a date and time when everyone is available. If you’re having trouble, consider scheduling the meeting after a regular board meeting or HOA event. If they’re also attending the HOA event beforehand, more of the committee members should be able to come. 

However, remember that it’s best to dedicate an entire afternoon to the meeting. This will give you ample time to consider every possible factor that affects the community’s budget. 

3. Gather Financial Information

The committee should collect financial information from the HOA. A good way to gauge the association’s projected income and expenses is to get an example of the HOA budget—preferably the previous year’s budget. 

Review the budget and how the committee allocated money for each expense. Compare the association’s actual income and expenses for the previous year to the budget. 

The committee can also review the HOA’s account balances and previous financial statements. These should provide an overview of the HOA’s financial condition and help you identify potential problems. 

4. Set Goals

Homeowners associations maintain the common areas, enforce the rules, and enhance the community’s overall living experience. However, in addition to the community’s regular operations, HOAs should identify its long-term goals and needs. 

What does the community want to happen in the next 5 years? Answering this question will help the committee set financial priorities and create a more effective budget. For example, the community wants to create more useful facilities for its residents. The HOA will need ample funds in its reserves for capital improvements to do this. The budget committee can then suggest increasing regular assessments to fund the reserves.

Before you set your goals, remember to consider the community residents’ opinions. Consider surveying the homeowners for improvements they want to see around the neighborhood. The board may want that new pool, but homeowners may simply want more services such as snow removal and landscaping. 

5. Estimate Community Expenses

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The community’s regular expenses are among the most important HOA budget requirements. Make sure to account for all the necessities so you don’t levy a special assessment later. Moreover, it’s crucial to remember that prices of various services and utilities may change due to inflation. 

One way to do this is to ask the HOA’s vendors about their rates for the coming year. Some vendors may provide the same rates, while others may increase their prices to accommodate rising material and labor costs. 

6. Account for the Reserves

If the HOA hasn’t conducted a recent reserve study, they should consider hiring a professional to assess the community’s physical assets and financial condition. Doing so will help the committee allocate how much it needs to fund the reserves. With ample reserves, the community will be ready for upcoming major repairs and replacements. 

7. Anticipate Changes

The HOA budget might serve as a reliable guide for homeowners associations. But changes and unexpected challenges occur no matter how well you plan things. It’s best to anticipate these changes and account for them beforehand.

For instance, the country’s economic condition might change in the following months. This can increase wages and inflation, resulting in higher contractor and management costs. Moreover, economic shifts may lead to unemployment and impact homeowners’ livelihoods. It can affect the HOA as there may be more delinquencies and late payments. 

8. Calculate Assessments

After considering all the factors, it’s time to calculate the regular assessments. Ensure that the HOA’s collections are enough to meet the community’s monthly expenditures. You should also account for the reserve funds and capital improvements.

However, remember that significant increases may invite backlash from the homeowners. Thus, balancing the community’s needs with the homeowners’ capabilities is crucial. The committee and board should also review state law and the governing documents, as there may be limits to how much the HOA can increase its fees. 

For instance, the state of California limits assessment increases to 20% of the preceding fiscal year’s HOA dues. The HOA can only surpass that limit with the approval of a majority of a quorum of the membership. 

9. Present the Budget and Gather Feedback

The budget committee should make a preliminary presentation to the community. Remember to be transparent with the HOA’s financial condition, needs, and constraints. The committee must also be open to correction and suggestions. Be prepared to adjust the budget according to the feedback. 

HOA Budget Best Practices

Here are some tips and best practices to keep in mind to create a reasonable budget. 

1. Be Transparent

The committee must be transparent about HOA finances. It must communicate the budgeting process and results clearly to the homeowners. Ensure they are well-informed about the community’s current state to support the budget and fee increases.

2. Don’t Neglect the Reserves

There will always be emergencies and rainy days in life. Accidents and natural disasters happen, so it’s best to be prepared to fund any major repairs, replacements, or maintenance when they do. 

3. Plan for the Long-Term

It’s easy to fall into the trap of planning for only short-term goals. However, planning for the community’s long-term objectives is the wiser choice. Anticipate future needs such as major improvements, upgrades, and amenity constructions. 

4. Use Technology

Several useful tools can help with budgeting and financial planning. They can help you track expenses, forecast income and expenditures, and generate reports. Take advantage of them to streamline the budgeting process and make proper analyses. 

5. Observe and Adjust

The community should regularly monitor its finances and spending as the year passes. Pay attention to whether or not the community remains within or exceeds the HOA budget. If you notice a discrepancy, adjust the budget to stay on track. 

6. Seek Professional Help

Budgeting often requires financial management expertise and accounting knowledge. If your community doesn’t have a resident accountant or financial expert, consider hiring a professional management company to help you draft the budget. It’s also a good idea to work with reserve study specialists to help you plan the reserves. 

A Successful Community

An HOA budget is essential for a community’s success. Otherwise, the community might neglect its duties and let its common areas disappear, which will affect the residents’ quality of life and impact property values.

Do you need help creating a community budget? Personalized Property Management can help. We offer specialized management services to South California homeowners associations. Call us now at 760-325-9500 or email us at to learn more!