Understanding Your HOA Budget: A Guide to Financial Health
You can think of your HOA budget as a simple story: where money comes from, where it goes, and whether there's enough cushion for surprises. The "trip wires" are places where that story stops making sense or looks fragile.
What an HOA budget should show
Most HOA budgets are organized into three sections.
Projected income
Assessments (your dues), fees, fines, and any other revenue.
Operating expenses
Day‑to‑day costs like landscaping, utilities, insurance, management, routine repairs.
Reserve contributions
Money set aside for big future items (roof, pavement, elevators, major mechanicals).
A healthy budget shows that regular income covers both operating expenses and planned reserve contributions without relying on one‑time fixes like frequent special assessments.
Why do I not see Actual Income and Expenses on the Annual Budget?
While the annual budget shows projected figures, "actuals" reveal what truly happened. Comparing them is crucial for assessing financial health. However, they serve two distinct purposes.
Budget
A forward-looking plan of estimated income and expenses for the coming year. It's the board's proposal.
Actuals
The real income and expenses collected and spent, typically found in an income statement with variance reports.
Seeing both helps you judge if the board’s estimates are realistic and if spending is on track.
Key Financial Documents to Request
Current Year's Adopted Budget: Projected income, expenses, and crucial reserve contributions.
Most Recent Income Statement: Shows actual year-to-date figures, ideally with a column comparing to the budget.
Balance Sheet: Reveals total assets, liabilities, and reserves, completing the financial picture.
Green‑flag indicators of financial health
When you get the budget packet, look for these positive signs.
Target Level Legend:
  • Reserve Funding: (70% or higher of what the reserves study recommends is considered healthy)
  • Delinquency Rate (Max): Should stay below 10% (lower is better)
  • Budget-to-Actual Match: 95% or higher shows accurate planning
Summary of Green Flag Indicators
Reserves funded at a reasonable level
Ideally close to what a reserve study recommends (many pros like to see at least ~70% funded or a steady plan to get there).
Regular, modest increases in dues
That clearly track rising costs (insurance, utilities, contracts) rather than years of flat dues followed by a giant jump.
Operating budget matches past spending
Roughly matches past actual spending, with explanations for any meaningful changes in line items.
Low delinquency rate on assessments
Many experts start to worry if more than 5–10% of dues are unpaid.
Consistent reserve contributions
Each year, not skipped or cut dramatically to "keep dues low."
If your board or manager can explain these points in plain language and provide prior years' budgets and a reserve study, that is another good sign.
Trip wires / red flags in the budget
These are warning signs that deserve questions or closer scrutiny.
Shrinking or tiny reserves
Especially if your community has aging roofs, pavement, siding, elevators, or pools; this often leads to special assessments.
Frequent or large special assessments
In recent years, which can signal poor planning or chronic underfunding.
Budget "doesn't match reality"
Big, repeated gaps between budget and actual expenses in key categories like repairs, insurance, or utilities, with no clear explanation.
Large or sudden cuts to maintenance
Or reserve contributions just to keep dues flat, which usually means deferred maintenance and bigger bills later.
High delinquency rate
Over about 10% of owners behind on dues is often cited as a serious concern.
Unexplained jumps in expense lines
For example, management fees, legal, or "other" without a narrative in the budget letter.

Warning: If several of these appear together, the association may be masking structural problems rather than fixing them.
Simple checklist when you receive the budget
When the next budget arrives, you can walk through these questions:
01
Income vs. expenses
Does total income comfortably cover total operating expenses plus reserves, or is it razor‑thin?
02
Trend
Compare to the last 2–3 years. Are dues going up in small, understandable steps, or are they flat followed by a spike?
03
Reserves
How much is budgeted for reserves this year, and is the reserve balance growing, stable, or shrinking?
04
Delinquencies
What percentage of assessments are past due, and is that stable or rising? (Ask for the delinquency ratio if it is not shown.)
05
Major projects
Are there known big projects (roof, pavement, structural work, code‑driven repairs), and does the budget or reserve plan show how they will be funded?
How to push for clarity
If you do not "speak budget," you can still ask for plain‑English explanations.
Ask for a one‑page summary
What changed from last year, why dues are at the proposed level, and how reserves compare to the reserve study.
Request key documents
Copies of the latest reserve study, year‑end financial statements, and delinquency report, and ask them to highlight any concerns in those documents.
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This article was created with the assistance of artificial intelligence. While AI tools help in generating and structuring content, all information has been reviewed and edited by human experts to ensure accuracy, relevance, and best practices.