Creating your HOA’s annual budget probably isn’t your idea of a good time. But if you’re serving on a board in Charlotte, Matthews, Huntersville, or anywhere in the surrounding region, you know that a well-constructed budget is your most important financial management tool.
Your budget isn’t just a spreadsheet of numbers. It’s a roadmap for your community’s entire year. It reflects your priorities, protects your homeowners’ investments, and determines whether you spend the year reacting to crises or proactively managing your association. Whether you’re managing a small townhome community in Rock Hill or a large master-planned development in Weddington, the principles of effective budgeting remain the same.
Let’s talk about how you can build a budget that actually works – one that’s realistic, comprehensive, and positions your community for success.
The biggest mistake boards make happens before they even open a spreadsheet: starting too late. Rushing through your budget in November for a January 1 start date creates errors and missed opportunities.
For communities in the Charlotte area operating on a calendar fiscal year, start your budgeting process in August or September. This gives you three to four months to gather information, analyze trends, get vendor quotes, and make thoughtful decisions.
Your timeline should include these milestones: review current year financials and identify trends, reach out to vendors for updated pricing, conduct property inspections to identify upcoming maintenance needs, review and update your reserve study if necessary, draft your initial budget proposal, circulate it to the full board for input, schedule a dedicated budget meeting, present the proposed budget to homeowners for feedback, and vote to adopt the final budget.
Communities in Gastonia and Fort Mill that compress this into two weeks end up with weaker budgets. They miss expenses, underestimate costs, and revisit the budget multiple times during the year. Give yourself adequate time.
Before budgeting for next year, you need a clear picture of where you stand today. Pull your year-to-date financial reports and compare them to your current budget.
Where did you come in under budget, and why? Maybe you budgeted $15,000 for landscaping but only spent $12,000 because you found a better vendor. That’s useful information for next year’s budget.
More importantly, where did you go over budget? If you budgeted $5,000 for pool maintenance but spent $8,000, understand why. Was it unexpected repairs? Poor initial budgeting? Each overage tells a story you need to understand before budgeting for the coming year.
Look at your cash flow patterns too. Many Charlotte-area communities experience seasonal variations in expenses. Your summer water bills are higher than winter. Understanding these patterns helps you budget more accurately and manage cash flow better.
Don’t forget to analyze your collection rate. If you budgeted for 100% assessment collection but only collected 95%, that 5% gap directly impacts your available funds.
Organize your budget in a way that makes sense and allows for meaningful analysis. Break your operating budget into several major categories with detailed line items under each.
Administrative expenses include management fees, accounting and bookkeeping, legal fees, office supplies and postage, bank fees, board education and training, and insurance premiums.
Operating expenses cover landscaping and grounds maintenance, snow and ice removal, utilities for common areas, pool and amenity operations, common area maintenance and repairs, trash and recycling, pest control, and security systems.
Personnel might include wages for direct employees, payroll taxes and workers’ compensation, and employee benefits.
Reserve contributions should be a separate line item showing your monthly or annual transfer to reserve accounts.
Contingency should be 5-10% of your total budget for unexpected expenses.
Create enough detail to track and analyze expenses meaningfully, but not so much that your budget becomes unwieldy. For a mid-sized community in Huntersville or Indian Trail, you might have 40-60 line items.
Don’t take shortcuts here. Looking at last year’s landscaping contract, adding 3% for inflation, and calling it good isn’t budgeting – it’s guessing.
For every significant expense, get updated information. Contact your current landscaping vendor about next year’s pricing. Even if you plan to stick with them, you need to know if costs are increasing. Better yet, get competitive quotes from two or three other vendors. This gives you accurate market pricing and might save you money.
The same applies to all major services. Insurance premiums can change significantly year to year. Utility costs fluctuate. Maintenance contracts expire and need renewal, often at different rates.
For expenses that aren’t contracted services, look at historical data and adjust for known changes. If your water bill averaged $800 per month this year but the utility company announced a 6% rate increase, factor that in.
Don’t forget about one-time or periodic expenses falling in the coming year. When’s the last time you painted the clubhouse? When does your property insurance renew? These aren’t surprises if you plan for them.
Communities throughout the Charlotte metro area get blindsided by expense increases because they didn’t do this homework.
Your budget must include adequate reserve contributions. This is non-negotiable.
Your reserve study tells you how much you should contribute annually to maintain fully funded reserves. That number should be in your budget, period. If your study says you need to contribute $50,000 annually and you only budget $25,000, you’re not being fiscally responsible – you’re deferring a problem that will eventually cost your homeowners far more.
Some boards try to treat reserve contributions as optional, only funding them when there’s money left over. This is backwards. Reserve contributions are as much a fixed expense as your insurance premium or management fee.
If your current reserve funding is significantly below recommended levels, consider a plan to catch up over time. Maybe you can’t jump from $25,000 to $50,000 in one year without a substantial assessment increase. But you can increase contributions by $5,000 annually for five years until you’re at the right level.
Remember that strong reserves protect property values. Communities with adequate reserves can handle major repairs without special assessments, making homes more attractive to buyers.
Once you’ve built your expense budget and included proper reserve contributions, calculate what assessment level you need to support it.
Take your total budgeted expenses and divide by 12 to get your monthly funding needs. Then divide by the number of units in your community to get your monthly assessment per unit. Compare this to your current assessment level to see whether an increase is needed.
Let’s say your community in Matthews has 100 units currently paying $200 per month in assessments, bringing in $240,000 annually. Your budget for next year totals $270,000. You need to raise an additional $30,000, which works out to $25 per unit per month – a 12.5% assessment increase.
Nobody wants to raise assessments, especially by double-digit percentages. But avoiding necessary increases creates worse problems down the road. Communities that kept assessments flat for five years have had to implement 40% increases all at once. That’s much harder on homeowners than gradual, reasonable increases.
Be honest with your homeowners about why an increase is needed. Show them the budget. Explain what expenses are driving the increase. Demonstrate that you’ve looked for cost savings. Most homeowners understand that costs increase over time.
Some governing documents require homeowner approval for assessment increases above a certain percentage. Know your documents and follow the required procedures.
Your operating budget covers ongoing expenses, but what about significant one-time projects? Think strategically about capital planning and funding.
Ideally, major capital projects are funded through reserves. But sometimes you need to do a project before you’ve saved enough, or you identify a project that wasn’t in your reserve study, or you decide to add an amenity that goes beyond simple replacement.
For planned capital projects, create a separate section in your budget proposal showing what you intend to do and how you’ll fund it. Maybe you’re resurfacing the pool deck next summer at a cost of $75,000, funded through reserves. Show this so homeowners understand that reserves will decrease but for a planned reason.
If a project requires funding beyond reserves, you may need a special assessment. These require careful planning and communication. Your governing documents outline the process, including what board vote and possibly homeowner vote is required.
Communities in Weddington and Marvin handle special assessments well by communicating early and often. They explain why the project is needed, what it will cost, how the assessment will be collected, and what happens if homeowners don’t pay. This approach doesn’t eliminate complaints, but it reduces them significantly.
Create multiple scenarios showing the impact of different choices. This is especially helpful when facing tough decisions about assessment increases or service levels.
Your baseline budget might show all expenses at current or projected levels with the required reserve contribution. This gives you a true picture of what fully funding your community’s needs looks like.
Then create an alternative scenario showing what happens if you hold assessments flat. Which expenses would you need to cut? What impact would that have on service levels or reserve funding?
You might create a third scenario showing enhanced services or amenities. What if you extended pool hours, upgraded landscaping, or added a new playground? What would that cost, and what assessment increase would it require?
Presenting multiple scenarios to your board and homeowners facilitates better decision-making. People can see the options and make informed choices rather than just reacting to a number.
A community in Fort Mill used this approach when facing a 15% assessment increase. They showed homeowners three scenarios: the fully-funded budget with a 15% increase, a reduced-service budget with only a 5% increase, and a deferred-maintenance budget with no increase. Homeowners voted for the full increase after seeing what they’d lose otherwise.
Your budget needs to account for Murphy’s Law: if something can go wrong, it will. Include appropriate contingency planning.
A general contingency line item of 5-10% of your total budget provides a buffer for unexpected expenses. This might cover an emergency repair, an insurance deductible, unexpected legal fees, or any number of things that arise during the year.
The percentage you budget depends partly on your community’s age and condition. Newer communities in Indian Trail or Waxhaw might budget 5% because everything is under warranty. Older communities should lean toward 10% or more because aging infrastructure means more surprises.
Whatever you budget for contingencies, treat it as off-limits except for true unexpected expenses. Don’t dip into contingency to cover regular budget overruns. And if you finish the year without using your contingency, transfer it to reserves or roll it into next year’s budget.
Your past budgets and actual expenses contain valuable information that should inform your future budget. Don’t treat budgeting as starting from scratch each year.
Pull your financial reports for the past three to five years. Look at trends in major expense categories. Has landscaping been creeping up 4-5% annually? That’s probably going to continue.
Identify seasonal patterns. Your summer water bills in Charlotte can be significantly higher than winter due to irrigation needs. Budget month by month if your management software allows it, reflecting these seasonal variations.
Look at expense volatility. Some costs are predictable and steady. Others fluctuate significantly. Understanding which is which helps you budget more accurately and avoid surprises.
Historical data on delinquencies is particularly important. If you typically collect 97% of budgeted assessments, budget accordingly. Don’t assume 100% collection and leave yourself short.
You’ve done the work to create a solid budget. Now you need to get it approved, which means presenting it effectively.
For board presentation, provide detailed materials several days in advance: the proposed budget with line-item detail, comparison to current year’s budget and actual expenses, narrative explanation of significant changes, reserve study summary showing required contributions, and any supporting documentation like vendor quotes.
Schedule adequate time for discussion. Rushing through budget approval in 20 minutes doesn’t serve anyone well. Consider a dedicated budget work session.
Anticipate questions and have answers ready. Why is insurance up 15%? Can we negotiate a better landscaping rate? Do we really need to contribute $50,000 to reserves?
For homeowner presentation, most Charlotte-area communities hold an annual meeting or budget meeting. Make this presentation accessible to non-financial people. Use charts and graphs, not just spreadsheets. Explain what homeowners are getting for their money.
Be honest about challenges. If you’re proposing a significant assessment increase, explain why. Show the alternatives you considered. Demonstrate that you’re being responsible stewards.
Provide opportunities for questions and feedback, but remember that in most cases, the board has final authority over the budget.
Underestimating inflation: Adding 2% to last year’s numbers doesn’t cut it when actual inflation is running 5-7%. Use real-world data from your vendors and service providers.
Forgetting about cyclical expenses: Your parking lot gets sealed every three years, but you only budget for it every third year. This creates feast-or-famine budgeting. Better to budget one-third of the cost annually.
Ignoring pending vendor contract expirations: That landscaping contract you’ve had for five years expires in January, and the new market rate is 25% higher. If you budgeted at the old rate, you’re already underwater.
Failing to budget for reserves adequately: This keeps assessments artificially low in the short term but creates massive financial problems long-term.
Being unrealistic about income: Budgeting for 100% assessment collection when you historically collect 95% leaves you 5% short before the year starts.
Not building in contingency: Unexpected expenses happen every year. Budget for them.
Creating a budget in isolation: Without board or homeowner input, budgets don’t reflect community priorities and often face resistance during approval.
Begin your budgeting process at least three to four months before your fiscal year starts. For communities operating on a calendar year, this means starting in August or September. This timeline allows adequate time to gather vendor quotes, analyze historical data, conduct property inspections, get board input, present to homeowners, and make adjustments. Communities that start earlier consistently produce better budgets.
There’s no one-size-fits-all answer. Your reserve study will tell you the specific amount your community needs. Typically, reserve contributions represent 15-35% of your total budget, depending on your community’s age, size, and infrastructure. Follow your reserve study’s recommendations, not an arbitrary percentage. Underfunding reserves is one of the most common and damaging budgeting mistakes HOAs make.
Budget 5-10% of your total operating budget. Newer communities with everything under warranty might be fine at 5%, while older communities should lean toward 10% or more. Consider your community’s history of unexpected expenses when setting this amount. Don’t treat contingency funds as a slush fund for budget overruns in other categories – save it for truly unexpected expenses.
No. While nobody likes raising assessments, holding them flat when expenses increase creates financial problems. You’ll either underfund reserves, cut necessary services, or both. Small, regular assessment increases are much easier for homeowners to absorb than large increases every few years when you can’t avoid it anymore. Be transparent about why increases are needed.
Get quotes and actual data rather than guessing. Contact vendors for next year’s pricing. Review current contracts to see when they expire and at what rate. Look at historical spending patterns and adjust for known changes. For truly variable expenses like emergency repairs, use historical averages and build in contingency. Document your assumptions so next year’s budget committee understands your reasoning.
First, ensure you clearly communicated why the increase is needed and what alternatives exist. Present multiple scenarios showing trade-offs. If homeowners still resist necessary increases, you have difficult decisions to make depending on your governing documents. In most North Carolina and South Carolina HOAs, the board has final authority over the budget. Never compromise on essential services or reserve funding to avoid assessment increases.
Major capital projects should ideally be funded through reserves based on your reserve study. Include these projects in your annual budget presentation showing when they’ll occur and how they’ll be funded. If your reserves are insufficient, you have several options: increase reserve contributions over several years to build up funds, implement a special assessment when the project is needed, or consider financing for very large projects. Plan well in advance.
Reserve budgets fund replacement of existing components that will eventually wear out – roofs, roads, pool equipment. Capital improvement budgets fund new additions or upgrades beyond simple replacement – adding a playground, expanding a clubhouse, installing new amenities. Reserves are typically required by your governing documents. Capital improvements are optional and might be funded through special assessments, loans, or accumulated surplus.
Start with a thorough expense review identifying opportunities for savings. Get competitive bids for services. Consider multi-year contracts for price certainty and possible discounts. Bundle services with a single vendor when it makes sense. Implement energy-efficient upgrades that reduce long-term utility costs. Review insurance policies annually. Consider preventive maintenance programs that reduce emergency repair costs. Be cautious about cuts that impact property values or safety.
Absolutely. Including new board members in budgeting provides valuable training and fresh perspectives. Pair them with experienced members who can explain the process and answer questions. This builds institutional knowledge and ensures continuity when board membership changes. New members might ask questions that experienced members stopped asking, potentially uncovering assumptions or practices that need revisiting. The budgeting process is one of the best ways for new board members to learn about their community’s operations and financial position.
*Cusick Company specializes in financial management for HOAs throughout Charlotte, NC and the surrounding region. Our experienced team helps boards create realistic, comprehensive budgets that support community success. For over 25 years, we’ve provided the expertise and tools Charlotte-area associations need to manage their finances effectively. Contact us at (704) 544-7779 to learn how we can support your budgeting process.*
