How to Do an Excellent Church Budget

You need to know exactly how to prepare a church budget.

It’s not like budgeting your personal finances. There are specific church budget guidelines that, if unfollowed, could destroy a church.

If your church is financially desperate, it’s most likely because you have too many visionaries who don’t care about best practices for church budgeting.

If you don’t know how to create a church budget, it doesn’t matter if you receive a $5 million gift. It will be swallowed up by poor practices. “Why should a fool have money in his hand to buy wisdom when he has no sense?” (Pro. 16:16)

If you have a strategic budget, you can accomplish your strategic missions.

If you have more visionaries than administrators, you are running headfirst into a brick wall. And when the crash comes, you will not recover from the hit.

I hope the crash hasn’t already come for you.

In this article I’m going to give you questions to ask to help you create a church budget, a line-by-line picture of exactly what your budget should look like and budget tools that can help your church financially succeed in the long term.

Pre-budget Tactics

Before you set a budget, you should have certain church budget guidelines in place—goals, restrictions, financial specialists and a financial philosophy. Without these things your budget will be like a new car with no destination—all the potential in the world, no ability to benefit from it.

Let me explain these four essential church budgeting guidelines.

1. Set Goals. Arnold Schwarzenegger once said: “If you’re training for nothing, you’re wasting your effort.”

Here’s what he meant: If you don’t have a vision, no amount of motivation or planning in the world will help you succeed. It will be impossible.

If you’re struggling financially as a church, ask yourself honestly: “Do we have any serious goals for our church?” In other words, “How is God calling us beyond our comfort zone?”

If you don’t have an answer to that question, then your default answer is: “We’re just trying to survive.” That’s a poverty mindset. With that mindset, there’s no need for a budget. You’re not budgeting for anything.

To keep your budget meaningful, active and vibrant, you need to use it for a purpose. Write down your goals. Hit those goals.

2. Cut Expenses. Churches waste a lot of money. Unfortunately, a lot of that money is debt that they don’t think about. The famous lifestyle organizer Marie Kondo is famous for saying: “If it doesn’t bring joy, throw it away.”

Look around your church and ask: “What would Marie Kondo throw away in our church?”

Once you have your goals, it’s easy to cut your budget. Simply see what costs are detracting from your ability to hit your goal and cut those costs. Don’t apologize for having a purpose. Don’t apologize for being called by God to be the church.

If you have a calling, you have goals. And if you have goals, you have to cut things. What are you called to cut?

3. Micromanage. This might mean training your church secretary to use church accounting software. It might mean hiring a third-party accounting service to keep your books. However it works, make sure someone has eyes on every cent at all times.

If you fail to do this, you open yourself up to theft and moral compromise.

Don’t wing the details. Have someone keeping their eye on every penny. Don’t be a church that is “penny wise and pound foolish”—meaning, you save money by buying moldy coffee for visitors but take out a 10% interest loan for a new building.

You need to have someone administering the implementation of vision to cuts to expenditures.

4. Stick to Your Budgeting Philosophy. There are three basic budgeting philosophies a church can use—incremental budgeting, zero-based budgeting and program budgeting.

Incremental budgeting starts with lasts year’s budget and says, “Let’s bump this up 1%.”

Zero-based budgeting reduces all program budgets down to $0 at the end of the year and says, “Every program needs to defend their merits to get a single cent of this year’s budget.”

Program budgeting looks at each program’s successes and failures and measures them against their goals and values. They ask of successes, “How can we keep this growing?” And they ask of failures, “Do we need to cut this program or do it better so that it can succeed?”

Pick whichever of these approaches works best for your church.

If you are in a season of heavily paying off debt, then cut down everything as much as possible and take an incremental budgeting approach at your church.

If you are in a season of new giving, take the zero-based budgeting approach to take advantage of your unique opportunity to launch new infrastructure and outreach programs at your church based on merit and alignment with vision.

If you are in a stable financial position with a desire to grow, take the program budgeting approach and optimize your church to meet your goals even better than last year.

Church Budget Categories

Now that you have a goal, know what cuts you need to make, who you’ll put in charge of finances, and what your budgeting philosophy is, you can fill in these church budget categories for your church’s budget.

Everything will fall into one of the following categories and requires a different kind of attention from the church.

However, what percentage your church should allocate to each of these categories in its budget is dependent upon your situation and church budgeting process.

For example, if your church is devoted to quickly escaping a debt trap, then you could devote over 50% of your budget to paying off a building loan. On the other hand, if your church is established and you own your building, then you can allocate a majority of your funds to outreach.

1. Income

This line in your budget represents all financial income the church receives. The most important thing you must do is keep different income sources separate.

Funds given to missions cannot go to a new building.

Funds given to the homeless ministry cannot go to a pastor’s bonus.

Keep all giving sources devoted to the purpose for which they were given. Don’t rely on your secretary’s Excel skills to guard the moral integrity of your church’s money. Use online giving, mobile giving or a church giving app. This will not only increase giving but morally safeguard your church’s cash flow.

2. Personnel

This church budget category includes all salaries, benefits and bonuses given to anyone employed by the church.

One of the biggest mistakes smaller churches make is they skimp on their pastor’s salary offering. As a result, they often receive low-quality applicants and consequently fail to grow as a church.

Investing in personnel is one of the fastest ways to increase the quality of the church’s executive team, which is the beating heart of the church’s operational efficiency and missional effectiveness.

3. Administration

This includes everything from coffee to a church management software.

4. Facilities and Equipment

This includes utilities, insurance, maintenance and toilet paper.

Every purchase of these products should be run through an operations manager at the church so that their purchases can be tabulated in the year-end budget analysis.

Since you should be focused on giving your first-time visitors a VIP experience, even purchases such as toilet paper quality should be given serious attention. Facilities and equipment aren’t write-off categories that can receive minimal attention. They are an important part of how a church is experienced by its members and visitors.

5. Outreach

Most members want to give directly to outreach. It is one of the easiest “sells” a pastor can make in terms of asking members for their time and money. However, churches should be cautious about investing too much in outreach if their house is in disorder.

Nobody likes being invited to dinner only to show up to a messy and smelly house. And nobody likes being invited to a church with a dry sermon, bad coffee and scratchy toilet paper.

Outreach requires in-reach.

In this sense, outreach should only be a large part of your budget if your church is in a season when its financial and operational affairs are in order. Most visitors will only give you one chance to make an impression.

So, before you devote 90% of your budget to a big outreach event, make sure you are ready to make the most of your opportunity to make a good impression.

6. Direct Ministry

This is basically diaconal ministry—youth ministry, counseling ministry, men’s ministry, women’s ministry, etc. These are important ministries that should receive budgetary priority before outreach ministry.

These are the sorts of ministries that you want to attract people to. Don’t short-shrift these ministries. These are bottom-of-funnel for pastors. That’s marketing-speak for: People who receive value are often the ones who give back.

People who participate in direct ministry represent the clearest pool of generous, willing givers in the church.

7. Church Expansion Expenses

This includes a fund to build a new building, add an addition or upgrade your facilities.

As your church grows, this should be a natural part of your budget. If you fail to supply sufficient facilities to make attendees feel like they are VIPs at your church, you risk losing them.

Church expansion isn’t the most fundamental line in your budget, but it’s a very important line to try to build if you want to have a budget in 10 years.

8. Debt

Debt is the enemy of cash flow. Debt is financial black matter. As long as you have six months of your church’s operating expenses in the bank account, you should pay off all your debt as soon as possible.

It’s not fun to pay off debt. You’d rather pretend it didn’t exist.

Several churches have recently closed due to an inability to pay millions of dollars in debt. It’s very easy to do, and having debt should make a pastor antsy.

Debt isn’t wrong. But paying it off should be a fundamental item in the budget calculation.

Budget Tools

Do a budget report every month. This is a best practice in building a church budget. There are multiple church software programs you can use to manage your budget, such as Aplos, QuickBooks Online and Intuit Quick Books.

Pay for the premium service and do a monthly audit to make sure you are staying on track with your budget. If you’re not, correct course immediately.

Spending your church’s money on the latest shiny things can feel good in the short term, but it will severely damage your ability to last as a church over the next several decades.

Learning to budget in the 21st century is like learning to swim living on a boat. If you want to survive, you need to learn, implement and execute.

First published on Used by permission.

Paul Maxwell