Understanding Your Association’s Budget: What It Is, Why It Matters, and How It Affects You.

If you live in a homeowner's or condominium association, you’ve likely received a copy of the annual budget, or at least noticed your assessment amount change from one year to the next. But what exactly is an association budget? Who creates it, who approves it, and how does it affect what you pay as an owner? Let’s break it down.

What Is an Association Budget?

At its core, an association budget is a financial roadmap. It outlines how your community plans to spend its money over the coming year and ensures that all the services, maintenance, and long-term repairs your community relies on are properly funded. This includes everything from landscaping and pool maintenance to insurance, administrative expenses, and contributions to reserve savings.

A well-prepared budget balances two key goals: keeping your community well-maintained and financially healthy, while being fair and transparent about how money is collected and spent.

How Is the Budget Developed?

Each year, your association’s management company and/or board of directors reviews the previous year’s expenses, anticipates upcoming needs, and prepares a draft budget. This process includes:

• Analyzing historical spending trends

• Evaluating current vendor contracts and potential cost increases

• Accounting for inflation and rising utility or insurance rates

• Planning for upcoming repairs or capital projects

• Ensuring adequate contributions to reserves for future repairs and replacements

This is not just a copy-and-paste exercise from last year. A lot of care goes into reviewing every line item to ensure that the budget reflects the real and projected needs of your community.

Who Approves the Budget?

Typically, the board of directors is responsible for reviewing, adjusting, and ultimately approving the annual budget. They do so based on their fiduciary duty to the association—they must act in the best financial interests of the community.

In some communities, governing documents may also require a notice period, member comment period, or even an owner vote for approval. Your association's specific process will depend on your bylaws and state regulations.

How Does the Budget Affect Assessments?

This is the part most owners pay close attention to—and understandably so.

The total budgeted expenses are divided among all the owners according to the assessment formula outlined in your governing documents (usually based on unit type or square footage). This determines your monthly, quarterly, or annual assessment amount.

So if expenses go up—whether due to increased insurance premiums, unexpected repairs, or simply inflation—your assessments may increase as well. Conversely, if the board is able to cut costs or shift priorities, assessments may stay the same or even decrease (though the latter is rare).

Why Budgeting Matters

A strong, well-thought-out budget helps protect your property values by ensuring that your community is properly maintained and financially stable. It prevents shortfalls, avoids the need for special assessments, and helps plan for the long-term upkeep of common areas and amenities.

When associations under-budget or neglect reserve funding, it often leads to unpleasant surprises—like special assessments or emergency repairs that could have been prevented.

What You Can Do as an Owner

• Review the budget when it's published – Your input is valuable and boards often welcome constructive feedback.

• Attend budget meetings – It’s a great opportunity to ask questions and better understand how your money is being spent.

• Pay attention to reserve funding – This is your community’s savings account for big-ticket repairs. It’s a key part of financial health.

Understanding the budgeting process empowers you as a homeowner and helps build trust between the board, management, and the community. After all, a financially sound association is something we all benefit from.

Still have questions about how your association budget works or how your assessments are calculated? Your community manager is here to help!