The most common budget in Portuguese condominiums is also the most fragile: take last year's number, nudge it up slightly, and present it to the assembly. It works until the first serious surprise — and that's exactly why so many condominiums end up with an accumulated deficit (see the previous article in this series).
Two Budgeting Methods — and Why the Most Common Is the Weakest
Incremental budgeting (the most used): takes last year's value and adjusts it by a percentage — usually estimated inflation. It's quick to do, but perpetuates any existing error or underestimate, year after year, without ever questioning it.
Zero-based budgeting (more rigorous, used internationally by organizations wanting tighter cost control): every line item is rebuilt from scratch, questioning whether the amount still makes sense, instead of assuming last year's value as a valid starting point. You don't need to apply this to the whole budget every year — applying it to two or three line items a year, in rotation, already reveals underestimates that incremental budgeting would never catch.
The Three Layers of Any Condominium Budget
1. Predictable current expenses — cleaning, shared-area electricity, insurance, recurring maintenance. The easiest part to budget, because it has direct history.
2. Common Reserve Fund — minimum 10% of ownership share (see the article on the reserve fund), added on top of current expenses, not included within them.
3. A contingency margin for the unexpected — the layer most incremental budgets ignore entirely. Good budgeting practice (in any context, not just condominiums) recommends setting aside a specific margin for unforeseen expenses — this isn't the same as the reserve fund, which serves planned conservation, not current-year surprises.
How to Calculate the Contingency Margin
There's no universal formula, but a practical principle: look at the last 2-3 years of extraordinary expenses not foreseen in the initial budget, and use that average as the basis for next year's margin. A condominium that historically has 1-2 moderate-value surprises a year should budget for that, instead of treating every surprise as a shock that always requires a special levy.
Common Mistakes When Building the Budget
- Budgeting maintenance expenses as "flat", without considering that older equipment (elevator, plumbing) tends to require growing, not constant, maintenance
- Ignoring the previous year's actuals when building the next budget — if a line item was consistently exceeded, repeating the same value ignores a clear signal
- Not clearly separating the reserve-fund rate from current expenses when presenting to the assembly, making it harder to understand where each euro goes
- Approving a budget with no associated dues plan — the budget fixes the total, but it's the dues plan (split by ownership share, see the article on calculating dues) that translates that into the concrete amount each owner pays
How to Track Whether the Budget Is Working
A budget approved by the assembly isn't a static document — it needs to be regularly compared against actuals throughout the year, not only at the year-end audit. A projected cash-flow report, updated as expenses happen, lets you spot a deviation in time to fix it, instead of discovering it as an already-consolidated deficit.
Learn more → actias-gest.solid-ai.net