As you create your HOA’s 2021 budget, make sure you plan on having more than enough money in both your reserve and operating funds. Having both funds full is important to maintain the upkeep of your community. But what is the difference between operating and reserve funds? And why can’t you just use one fund instead of two? Let’s break it down.
Operating Funds are what is used for normal, day-to-day expenses such as lawn care, snow removal, repairs & maintenance, and more. The services classified as operating services are set by governing documents, so while there may be some variation as to what your HOA offers, most of them are the same.
Reserve funds are funds used in an emergency, like storm damage. Most associations hire a professional to come and develop a reserve study, looking at your buildings and pavement and estimating when maintenance and replacements will need to be made. HOAs can then set a budget off of these estimates; if you will need a new roof in 2 years and new siding in 5, put more of your reserve funds into the “roof” section and less in the “siding” section since you will need your roof done sooner than your siding.
Operating and reserve funds are just like checking and savings accounts. Most of your expenses will be paid via your checking account, but when there is an emergency like a major hailstorm or pavement damage, you dip into savings account. Having your money separated into these two accounts will help keep you within budget and spending money on the things that your HOA community needs to operate.