The Importance Of Saving Money For Special Projects

Most membership associations have periodic expenses that can be a substantial portion of the operating budget. If property is owned, there could be a parking lot needing resurfaced. There could be a key piece of software that needs to be replaced every 10 years. It is important to plan for these significant expenses by setting up a reserve fund for each project. 

 

When the board creates a savings plan for a reserve fund it is normally based on how far into the future the special project is expected to happen and the total costs that would be required. The necessary dollar amount to be added to the reserve fund each year can then be calculated by taking the expected expense divided by the number of years remaining. The membership association's treasurer can then add a line item for each special project in the annual budget.  

 

 

Because reserve funds are based on something that is expected to happen several years in the future, many variables can change during that timeframe. The cost of building materials could increase. New companies could enter the market and drive down prices. The needs of the special project could also increase or decrease.  Because of this uncertainty, it is important to have the mindset that a reserve fund is intended to help the association have a majority of the money it may need to survive the large, future expenditure. 

 

Some associations get into financial trouble because they focus only on the short term when spending money and creating the annual budget. As a result, reserve funds and large future expenses are not taken into consideration. While some membership associations may think they are keeping annual dues low, they are actually putting the association's viability at risk. So, what should be done?

 

 

It is up to the board to focus on long term and maintain the financial viability of the membership association. While all members would like to keep expenses and annual dues low, any short term gain would be short lived. Once it comes time to accomplish the special project, a lack of funds will certainly upset the association's members. In these situations, a special assessment would need to be passed to the members to raise the necessary funds. This can likely lead to members leaving and refusing to pay which will lead to the inability for the membership association to continue to operate. 

 

It is important for the board to realize that members want to be part of the association and want the association to succeed. By communicating the financial plan to the membership, an increase in dues to cover operating expenses and setting aside funds for special projects will be well received. To increase transparency and provide better documentation for these plans, it is a good idea to create a special page on the membership association's website that provides all of the details.