Budgeting 2012 - Part 1

It's that time to look at my personal budget for the year. This is part 1- of 2- part post. Are there some similarities between our association and the decision making of my personal budget? Let's see.

The "Chicagoland Cooperator" has an article in the January issued entitled "Striking a Tough Balance - Revenue vs. Reductions." The article begins:

"It's the same dilemma that households across the United States are facing. How much money can we afford to pay for the services we want? And should we stretch ourselves thin taking more out of our bank accounts to pay for private schools and that desperately needed vacation? Or should we cut back on restaurants and renovations to add more savings to our bank account?

The same goes for condo and co-op buildings." (Note 1).

I seems the Cooperator does think there are similarities!

Readers of this blog are aware that this association has struggled to maintain a balance. Typical questions might include: Should we spend down the association savings, with the hope that future owners will "ante up" and replace those reserves? Should we risk the need for special assessments? Should we stay the course on roofing and other vital projects, or delay? Certainly if one has a new roof, it might be tempting to say "you can stop now, I'm okay!"

There are and have been a range of opinions among the owners.  Several years ago, in the middle of the recent recession which had the period December 2007 to June 2009, an owner came to an association meeting and argued "What do we get for our money?" That is one question. Others have been of the opinion that we were spending too much and the simple solution was to fire management and maintenance, and replace them with a small army of "handymen." The argument was based on a position that "Anyone can manage a 40 acre association!" Still others argued for continued standards, but at lower costs to owners, which is to say, at lower fees. I guess that implied a desire to spend the savings for reserves on daily maintenance, and put reserve "saving" on future owners.

I have asked in recent years if an austerity program was warranted. I said it this way "What are we willing to give up?" This was generally met with silence, which I construed to mean "nothing," and I said so. That is a really difficult question and I am of the opinion that it might be the "third rail" or at a minimum a polarizing issue at many HOAs. "What am I willing to give up" is also a question when I am pinched in my household budget. It becomes most difficult when one is unwilling to give up anything, or states that everything is essential.

There has been recent feedback in the association but generally it's about expanding programs rather than reducing them. In 2011, it seemed that some owners preferred more extensive landscaping; others would like every scrape or piece of peeling paint immediately touched up. Others want a more extensive mosquito abatement program. Some want every conduit on the property painted. Some want the streets seal coated. Others have been impatient with drainage improvements. It goes on and on.

There is no doubt the association is to be maintained, and with the current board, it will be. We are in an inquiry to sustain a balance. Questions posed include, at what point is such maintenance conducive to unit sales and maintaining of owner property values? At what point have we dipped below minimum standards, and at what point are we overspending? There are a range of opinions among the owners. At one extreme there are those who would say "once my personal issue or agenda is resolved, then spending should cease." I suspect that there are also those who would argue "lower the fees so I can sell my unit." But then what? What about the owners who live here, or the new owners who purchase? What about the 70% of the roofs, or the driveways, or the streets scheduled for repair or replacement?

The question I live in is "How to stay the course, and maintain the balance?" This applies to my personal budget, as well.


Facing 2012
I think the board is very aware of the issues. However, I am a proponent of doing what I can in my own life as a beginning. So in the fall of 2011 I again reviewed my personal budgeting for the coming year, 2012. Of course, part of good budgeting is good record keeping.

In my personal life, there are several aspects to budgeting and they mirror some aspects of the budgeting of the association:

1. Operations and Maintenance
2. Reserves

There is also a third category in my personal budget which I would call "discretionary spending." This includes such things as personal communications, eating out, entertainment, vacations, clothing, automobile, etc.

Here's an example of a discretionary spending decision. I can choose between a $49 cellphone on a $70 monthly plan, or I can go for a "smartphone" such as an iPhone, with full internet access at 4G, etc. An Apple iPhone 4S "no commitment" plan at AT&T is $199 to $399 for the phone with a two year service commitment. Data (email and internet) is another $15 to $45 per month, depending on usage, and unlimited voice is about $70 per month, for a single phone. So I have a choice of monthly fees between $70 and $115 plus a phone cost of $49 to $399. This is for one phone, and family plans are more costly. At additional cost, I can also have a "landline" phone. But at what point are having both cell and landline phones a "necessity" or a "luxury?"

In my case, I have decided to have both. But as a compromise, the family cellphones are not "smart phones" but the basic $49 models, and there are three. One for me, one for my spouse and one for association use. I pay for all of them. We attempt to keep our cellphone usage within the package minutes, and have been successful for about 35 out of 36 months.

In my case, we traded off something else to pay for these cell phones and the monthly services. The argument "I've got to have it" isn't a rational basis for purchase of anything. "Can we afford it" is a rational argument, and "What are we trading off to get this" is another.

This same approach can be applied about internet service, cable or Satellite Dish TV, restaurants, vacation, additional entertainment such as movies, a Netflix subscription and so on. Another question; "At what point do I replace the car with a new one?" That's a thorny issue, because of the "cache" surrounding what one drives. Yes, it's useful to acknowledge this as a "consumer driven" society. $250 a month for car payments may not sound like a lot, but that's $3,000 annually. It's almost guaranteed that the insurance for a new automobile will be more costly than an older one. My "oldest" auto is 8 years old, but it does not cost me anywhere near $3,000 annually to repair, and that includes brakes, tires, battery, air conditioning and heater, and dealer service every 3000 miles or 90 days.  At what point is a vehicle not maintainable? At what point is it a rusting hulk? Is is reliable and does it get me where I need to go? Are the safety features functional? What were the annual maintenance costs last year? Those are some of the questions I ask. Yes, at some point there will be honest "no" to some of these questions, or maintenance may reach replacement cost. At that point, a replacement will be considered, and replacement may be a necessity. Until then, it's another "discretionary" expense.

This approach also applies to eating in. I can prepare really nice meals at less cost than most of the "prepared" stuff, and much, much less than eating out. But eating out is more fun. My spouse and I have a competition for "30 minute dinner meals" which include a range from pastas and stir-fry, hot dogs, hamburgers, steak, chicken breast, fish, etc. and freshly prepared vegetables including mashed potatoes, carrots or green beans sauteed with mushrooms and onions in olive oil, spinach, and of course, frozen vegetables. We do cheat, with previously prepared squash, spaghetti sauce, chili, soups, meat loaf etc. which are readily thawed and heated. We also toss in semi-prepared from Trader Joe's, and organic soups and even macaroni and cheese and the occasional can of baked beans and smoked sausage. A little cowboy food is a good thing!

Not everyone can do this, and I appreciate that working families may not be able or all that willing to cook dinner after a day at work and the after school activities of the children. But these are decisions to be made, and they are elected, not forced upon us.

How we each answer these types of questions will determine our monthly and annual  personal budgets.


Notes: 
1. Link to the Chicago Cooperator Website: 


www.chicagocooperator.com