Reserve Study Tutorial VI
How is the Fully Funded Balance Calculated?
Simply put, the formula for the fully funded balance is:
Current Cost = the current cost of any reserve component project
Effective Age = the current age of the component adjusted for current condition – expressed as a fraction of the useful life ([Useful Life – Remaining Useful Life]/Useful Life)
If a reserve project has a useful life of 5 years and a current cost of $5,000, then the association needs to put aside $1,000 a year towards the future cost of that project ($1,000/year for 5 years = $5,000 total project cost). If that reserve component is 2 years old then the reserve fund should already have 2/5 of the project cost or $2,000 towards the future project cost.
This calculation is repeated for each component. The sum of the individual reserve requirements is said to be the fully funded balance.
Helping you association plan for reserve expenses for over a decade