The month of December often adds several activities to the church calendar. Christmas cantatas. Children’s plays. Neighborhood caroling. Candlelight services. Small group fellowships. Live nativities. Winter retreats. The list could go on and on.
But another activity often takes place in December that doesn’t get the fanfare of the others: budget planning. For churches whose fiscal year is the same as the calendar year, December is filled with number crunching, spreadsheets, and calculators for the Budget Committee as they diligently prepare the following year’s budget for the church.
While church budget planning is not glamorous, it is incredibly important. Over the years, I have planned many budgets and learned some best practices as well as pitfalls to avoid. If your church is in the process of preparing your annual budget, I hope these suggestions will help.
#1: Start planning early
The earlier you begin to plan, the better. For example, if you want to shop for cheaper insurance, you must do so before it’s time to prepare the budget. If your fiscal year starts in January, you’ll want to receive insurance quotes no later than September (if possible). Similarly, if you hope to lower your utility bills (such as internet or security services), you must conduct your research before budget planning is in full swing. These activities take time, so you need to plan accordingly.
Planning early also gives your Budget Committee (or whoever’s recommending a budget) sufficient time to pray and make wise decisions. Budgets prepared in haste sometimes hurt more than they help.
#2: Remember your church’s mission
The church’s ultimate mission is the Great Commission, but each local church is free to accomplish that mission in ways it deems best in its local context. Therefore, a church budget is simply a written plan for how your church will spend its money pursuing that mission.
As you consider each line item in your budget proposal, ask two questions:
- #1: Is this line item “mission critical?” Is this line item critical to the accomplishment of your church’s mission? Does it help, hurt, or have no impact on your mission? (Note: operational expenses such as utility bills and insurance costs are critical.) If it hurts or has no impact on your mission, you should seriously consider why you are allocating money for it. If it helps your church accomplish its mission, move on to the second question.
- #2: How much should be allotted for this item next year? Notice that I didn’t ask, “How much was allotted last year?” While past budgets are helpful tools in the budget planning process, the previous year’s budget should not be the primary determining factor in how much is allocated next year if you use a “faith budget” approach. (More on this point below.) Instead, your church’s ministry goals for the upcoming year should be the primary determining factor in how you answer this question.
#3: Develop a faith budget, not a foolish budget
Christians are people of faith. After all, we have been justified by faith (Rom. 5:1). We are called to pray in faith (James 1:6; Mark 11:22-24). The writer of Hebrews goes so far as to tell us that it’s impossible to please God without faith (Heb. 11:6).
That’s why churches often develop “faith budgets.” A faith budget simply means that the church believes that the Lord will provide sufficient funds to accomplish everything He leads them to do during the year. This approach contrasts with a historical budget. With a historical budget approach, the proposed budget for the new year cannot exceed the total income from the previous year, no matter what the church may sense the Lord is leading them to do in the coming year.
For example, if the church senses God is leading them to expand their youth ministry, they may determine that an additional staff member is needed. A historical budget approach would require that the salary for the new youth minister be funded within the confines of the previous year’s total income. If there’s no way to make cuts to other areas to pay for the additional salary, then it’s likely that the church would not create the new position. However, in the faith budget approach, the church recognizes that the Lord is leading them to create a new Youth Minister position, which means that the budget must increase to fund the position.
While the faith approach to church budgets is preferred, it also needs to be noted that there’s a fine line between faith and foolishness. For example, if the church has not met its annual budget in several years, and there’s no legitimate reason to expect that trend to change, increasing the budget by 75% the following year is not an act of faith but of foolishness. In Luke 14:28-29, Jesus cautioned against such foolishness: “For which of you, desiring to build a tower, does not first sit down and count the cost, whether he has enough to complete it? Otherwise, when he has laid a foundation and is not able to finish, all who see it begin to mock him, saying, ‘This man began to build and was not able to finish.’”
As you develop your church budget, exercise faith that the Lord will provide the funds necessary to accomplish all He leads you to do. As you do so, be reasonable and careful not to blur the lines between faith and foolishness.
#4: Work collaboratively with church leaders
The Budget/Finance Committee does not operate in a vacuum. In healthy church situations, the Committee works collaboratively with appropriate ministry leaders. They ask for their input. They listen to their ministry plans and goals. They ask for clarification when needed. They don’t act as the sole authority in all financial matters. They realize that the church has assigned them a specific task, but they don’t seek to accomplish it independently of the church and its leaders.
In other churches, the opposite is true. Some Budget/Finance Committees see themselves as the gatekeepers of the budget and all financial matters. They don’t ask for the input of ministry leaders, and they operate with the mindset that church leaders will “get what you get and don’t throw a fit.” If a church leader requests an increase to a line item, the Budget Committee interrogates the church leader and requires indisputable justification before they “approve” the request.
#5: Be generous with pastor/staff compensation
We live in days of rapid inflation, and a dollar doesn’t go as far as it used to. (Who am I kidding? Fifty dollarsdoesn’t go as far as it used to!) Like you, your pastor(s) and other paid staff have felt the impact of inflation. From 2010-2020, Social Security’s Cost-Of-Living Adjustments averaged 1.5% per year. In 2021, it jumped to 5.9%, and 8.7% this year. Believe it or not, the current Cost-Of-Living Adjustment is the highest it’s been since 1981.
Given these realities, you should be as generous as possible with pastor/staff compensation – especially this year. Work a Cost-Of-Living raise for all paid staff into your budget if possible. While you may not be able to provide a raise of 8.7% (if your budget will tolerate it, do it!), do as much as you can. If your budget can’t keep up with the Cost-Of-Living adjustments, your paid staff are essentially receiving pay cuts. (Note: check out Lifeway’s most recent church compensation study for current compensation comparisons.)
#6: Strive for appropriate allocations
When considering compensation adjustments, the question inevitably arises about how pay raises will affect the rest of the church budget. Will the church have enough for ministry? Will there be enough to pay fixed operational expenses? Will we have money left to give to missions causes that we care about? These are not insignificant questions.
For most churches, there are four broad categories of expenses: (1) Personnel, (2) Operations, (3) Ministry, and (4) Missions. It’s helpful for Budget/Finance Committees to decide at the beginning of the budgeting process how much of their budget they’d like to allocate for each category. Here are the percentages I recommend:
- Personnel (salary, benefits, etc.): 50% (Range 40-60%)
- Operations (facilities, office expenses, etc.): 20% (Range 15-25%)
- Ministry: 20% (Range 15-25%)
- Missions (Cooperative Program {SBC}, local association, specific missionaries, etc.): 10% (This is the minimum I recommend – more on that below.)
Each church is unique, and your percentages may look slightly different, and that’s fine. However, a church budget that allocates 85% to Personnel expenses won’t have much money left to do ministry. A church with 50% of its budget allotted for Operational costs will not have much left to pay its staff or do ministry in the community.
#7: Be careful with making cuts to missions
When church budgets get tight and cuts are necessary, one of the first reductions is usually the missions budget. I understand the rationale. It’s the one category that doesn’t impact what takes place inside your church. If a church must decide between paying their pastor, keeping the lights on, or giving to missions causes, missions will get the axe every time.
Thankfully, churches don’t usually have to make cuts quite that drastic. Still, when cuts are necessary, churches don’t usually hesitate before cutting their missions giving. However, I would encourage you to think twice before doing so, especially if a reduction would cause your church to give less than 10% to missions causes.
There are at least two reasons for this. First, it’s difficult for church leaders to encourage church members to give at least 10% of their income to the church if the church is not modeling that same sacrificial posture by passing on at least 10% to other missions endeavors. Second, I have found that churches that reduce or eliminate their missions giving rarely return to previous giving levels in times of abundance. They often find something else to do with that money.
Therefore, I would encourage your church to think twice before cutting your missions budget – especially if doing so would require you to give less than 10% away.
More to Say
There’s so much more that could be said about developing a church budget. If you’d like a deeper dive into this topic, I’d recommend picking up a copy of Budgeting For a Healthy Church by Jamie Dunlop. Happy budgeting!
Photo by Skitterphoto: https://bit.ly/3h6fOTp
