Funding the reserves - monthly or yearly?

I am curious as to how other associations (particularly those with monthly dues) fund your reserve accounts. Do you have a set amount that you place into reserves on a monthly basis or do you wait until the end of the year and place whatever happens to be left into the reserve account and call it good. What do your docs call for in this situation? I know the standard answer is to check your docs. Mine say to "regularly fund" which is ambiguous.

Thanks

In our association the dues are collected monthly. When we prepare the annual budget we calculate, based on the most recent reserve study, the monthly amount that needs to be allocated from each monthly assessment to fund the reserve to the required annual level. Those amounts are placed into the reserve account each month.

I believe that this is the correct approach to insure the long term financial viability of the association. It is the old "pay yourself first" approach to saving money that many follow in their personal lives to save for retirement. It can be dangerous to wait until the end of the year and only contribute what is left over to the reserves. By then it is too late to cut back on discretionary expenditures to provide for full funding of the reserve. Any board that fails to fully fund the reserve based on the reserve study is failing to fulfill their fiduciary duty (IMHO).

We fund reserves monthly.

Ours are funded yearly but monthly would probably be better.

We are in California and, once you put money into reserves, it is difficult to take out. (We are required to have separate accounts for reserves and operating expenses.) So, by doing it yearly, we have less chance of getting caught short in a particular month.

Chris,

IMO, the proper way to fund the reserves is to deposit a set amount in the reserve account each month. Our budget shows a "transfer to Reserves" (a CR figure) amount under the income portion of the budget. This amount would be divided by 12 and 1/12th deposited into the reserve account each month. Then at the end of the year if there is an excess, that amount can also be deposited into the reserve account or just left in the checkbook to provide a cushion for the next year's expenses. To just deposit any excesses into the reserve would most likely result in grossly underfunded reserves. Hopefully the board would not take money from the reserve account if there happened to be a net loss at year's end.

In Calfornia, all the HOAs that I know of have underfunded reserves and a good number are so broke that they're bouncing checks. The Davis-Sterling laws almost encourage yearly, not monthly reserve funding, and that's what you get.

Thanks for all of the responses. Most associations seem to be doing what I plan to advocate for at our next meeting. One other question - what criteria do you use for determining if there isn't enough money in a given month to make the monthly transfer and if that is the case do you try to make up the transfer in a following month? I know the simple criteria is to say we don't have $x to transfer this month but do you try to keep a cushion in your operating account?

Chris,

I'm sure many HOA's experience cash-flow problems from time to time making it necessary to postpose some expenditures. However, the reserve funding should be paid each month just as the assn's other monthly bills are paid. And, yes, it is wise to have a cushion in your operating account to make up for those cash flow problems and for any unforeseen expenses that may arise.