When preparing a budget proposal for a client condo association, I have to propose an amount to contribute to reserves. If you want to be able to get a loan under Fannie and Freddie guidelines, the condo association for a long time had to contribute 10% of total condo fees to reserves (so if you have $9000 in expenses, $1000 to reserves, $1000 = 10% of $10,000).
This year it’s going up to 15%. I’d been guessing – $5,000? No, that’s 14.77%. $5100? That’s 15.36%. $5050? You get the idea. It’s annoying.
Then I remembered algebra. I literally majored in math in college. My favorite class was Fundamental Concepts of Algebra. So I got out a piece of paper (actually an envelope from a Verizon bill out of the recycle bin) and worked it out. It took a minute to shake the cobwebs off but I quickly determined that if you set the reserves at (3 * expenses)/17 gives you 15% of the total. This is amazingly simple and I can’t believe it took me this long to work it out.
Stay in school, kids.
@complain So if you're treating expenses as the known, expenses/(1-reserve requirement) = fees
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Sorry, no more mathing today
@complain You can never have too much mathing!
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it’s just like anything else – if you don’t really do it for 20 years, atrophy sets in…