A Comprehensive Guide to Creating a Church Budget (Steps & Tips)
Church budgets are needed to continue the church’s mission and grow to reach a larger community. When creating a budget, leaders must ask how the church will raise and spend funds. In this article, we share why you need a budget, different budget types, actional budget tips, and steps to create a working budget for your church.
Budgets are needed for churches to continue their mission and grow to reach a larger community. When creating a budget, church leaders should ask how the church will raise and spend funds. When making budgeting decisions, the bible includes many verses to show you the way.
In this article, we share why you need a budget, different types of budgets, some actionable budgeting tips, and a few steps to creating a working budget for your church.
Does your church support missionaries outside of your church?
Regardless of the type of budget you decide to go with, if your budget answers each of these questions and looks towards the future, you are on the right track.
3 Types of Church Budget
Thanks to a lifetime of the house and personal budgeting success, you may think you are an expert on budgeting. Budgeting for churches is similar in some ways, but they are much closer to business budgeting. Below is a list of different budgets that work best for various churches.
1. Line-item/ Incremental budgeting
Line-item budgeting is the most common form of the budget with businesses. If your church already has a budget that works, this type of budget may work best. A line-item budget takes a church’s previous budget and only makes a few tweaks to update it for the current year.
2. Zero-based/ Based budgeting
The zero-based budget starts every year with a zero-dollar balance. What that means is each of your church’s services must be paid for during the year. A zero-based budget may not be possible annually, but you may want to look at adding this type of budget clean-up every 5 years.
3. Program budgeting
The final budget type is program budgeting. This budget type focuses on church programs and evaluates their usefulness and ability to raise funds. If your church decides to go with this budget type, you must determine what needs each program was created to serve and if the program effectively fulfills these needs.
Your church leadership may come across specific essential programs to your church, that do not raise the necessary funds to support its existence financially. In these cases, your church will need to find additional ways to raise funds for these programs.
What should a Church Budget Include?
Church budgets must cover all the needed expenses that your church accrues. Below is a list of the most common areas that must be covered in your church budget.
Keep track of all income your church receives — including online donations and other fundraising channels. Keep separate income streams so they can be used for the intended purpose.
Regardless of the size of your church, you most likely have at least a few salaried staff positions. These positions may also offer benefits like healthcare. When budgeting, you must include the total salaries of each staff member along with the cost of the benefits paid for each.
In addition to personnel costs, your church’s administration costs will likely stay the same year after year. Operating expenses include rent or mortgage payments, office equipment and supplies, insurance costs, and more.
4. Facilities and equipment
Facilities and equipment costs can stay the same every year, but additional charges can come up. If possible, your church should keep other reserves to cover unexpected maintenance costs.
5. Direct ministry
Your church’s direct ministry can include programs for children, youth, counseling, adult men and women, and more. These are your primary programs and are essential to the mission of your church. Each of these programs should fulfill a critical need, and funding for these programs should be dependable so you can continue providing these services.
Outreach costs are an expense specific to churches, and cover missions, evangelism, and social events. While your church expenses are a primary concern, your church will likely fund mission trips and activities to fulfill your mission.
7. Church expansion
The goal of every church is to grow and spread God’s word to more people. The result of this growth is often a need for a larger facility. As your church grows, you may have the dream of a larger building in your mind. It is never too early to start saving for this cost. Your church should have a reserve set up for this growth.
8. Reserves for the future
Ideally, your church should have at least three months of reserves to fall back on — preferably more than this. At the very least, it’s smart to have reserves that can cover a month’s worth of salaries and key expenses.
Pro tip: It’s easy to overlook annual expenses since they aren’t regular outgoings — which can lead to some surprises when the payments are due. Be sure to factor your church’s annual expenses into your budget.
Unfortunately, many churches have debt thanks to a mortgage or other unexpected expenses. Payments for these debts must be included in your budget as necessary expenses.
Fundraising software can help your church raise more funds and strengthen your donor relationships. Investing in software that can maximize your donor communications is also a smart move.
Donorbox is a fundraising tool that doubles as donor management software. It’s free to start with. There are no monthly costs or contracts. This video will show you how it is helping thousands of churches across the globe raise funds and boost donor engagement –
Keep a portion of your church’s budget for marketing, especially in the final quarter of the year. This is known as the nonprofit fundraising season, and it’s a significant time for donations.
To make the most of nonprofit fundraising season, put up to a third of your marketing budget aside for fundraising season and spread the rest throughout the year.
3 Steps to Creating a Church Budget
Once you have decided on the type of budget and a list of expenses you must pay annually, you can start creating your budget.
Step 1 – Set realistic goals
The first step to creating a budget is to set your goals. It may be fun to dream about your wants when planning a budget, but it is best to be realistic.
When setting your budget goals, it is best practice to create SMART goals that are Specific, Measurable, Achievable, Realistic, and Time-bound. You should also ask your church members to weigh in on what goals you should have as a church. Your members’ input will help decide which programs and expenses should be prioritized.
Step 2 – Stabilize expenses
Your church’s expenses can be stabilized by deciding how much of your income should be spent on each program and activity. The bible gives us directions on where we should spend money. Throughout the bible, we are asked to fund missionary work, pay our church leaders and ministry, and give to the poor.
Several articles give specific percentages on where your church should spend money. Most of these articles agree that the largest share should cover salaries and wages for your ministry and staff. After that, the percentage largely depends on your church’s specific expenses.
For your church to continue paying your bills on time, a certain percentage of your income must pay off debt and save for emergencies. Unexpected costs will come up, and being prepared for these situations with an emergency fund allows your church to use all funds responsibly.
Step 3 – Grow your financial reserves
Emergency funds are not the only area of savings your church should include in your budget. Like any church, you want to look to your future and the potential for expansion.
To ensure that possibility, you should purposely set aside a reserve fund. When funding your reserves, you must cover at least one pay period for your staff. Remember your reserves should not exceed the amount of your budget for two years.
6 Actionable Tips for an Effective Church Budget
1. Assess previous data
Look back over the previous 2-3 years of financial data to spot patterns in income and expenditure.
Questions to ask can include:
How much are you spending on personnel, facilities/equipment, and administration? If these areas account for more than 45%, 30%, and 10% of your spending respectively, you likely don’t have much room for spending in other areas.
Does your church typically pay all of your expenses on time?
Are there reserves you can dip into if needed?
How many donations does your church receive?
How many of these are recurring donations that your church can rely on to even out seasonal fluctuations in attendance and giving?
How much does the average member of your church donate?
Are there any significant fluctuations in attendance and giving?
2. Make budget cuts
Be prepared to make cuts to your church budget if necessary. Once you’ve assessed your income and expenditure, you will see areas that could be streamlined.
The below questions, particularly around ministries, can help –
Are there some ministries within your church that are not effective or non-essential (in the short term, at least)?
Are there expenses you could cut and not see a difference in terms of results? Duplicate resources across ministries is a common example of inefficient spending that can be easily addressed.
Are your proposed cuts likely to make any roles redundant?
Pro-tip #1: Unless your church is in severe financial trouble, it’s usually better to make one big cut per year. Making too many cuts at once can be destabilizing.
Pro-tip #2: If people are receiving bonuses, these may need to be cut. However, unless you’re struggling a lot, avoid making budget cuts to salaries beyond this.
3. Appoint a finance person
Make sure someone is keeping a close eye on the finances and can account for every single cent that is spent. This person doesn’t need to have a finance background, but ideally, they’ll have a good working knowledge of budgeting.
Pro tip: You don’t need to hire a finance person on a full-time basis. For many churches, a part-time role will be enough. You could offer the responsibility to a trusted volunteer on a part-time basis, for example.
4. Pull monthly budget reports
Following your monthly budget can help you identify places where you may be spending unnecessarily, so you can decide to put a stop to it before it is too late. Similarly, your monthly budget will help you identify where you need to allocate your funds at the right time.
Pulling a monthly budget is very easy if you’re using donor management software. With Donorbox, you can pull donation reports quickly and easily to see how your income stacks up against your budget.
5. Account for seasonal shifts
For most churches, there are fluctuations in attendance at certain times of the year. December usually sees a spike, for example. When you create your church budget, factor these shifts into account and use them to avoid tough times. During the “peak” times, you can budget to put more money aside for the lower-income months.
6. Have a plan for maintenance work
You’ll likely need to do church repairs at some point and these can potentially be costly.
If you haven’t factored maintenance into your budget, it can also be financially devastating. Putting a portion of your church’s income aside for maintenance work can avoid financial headaches.
It also means you won’t need to hit the panic button if maintenance work is required. Churches that haven’t budgeted for repairs often need to lean more heavily on their congregation to cover the costs.
Raising Funds – An Essential Aspect of Church Budget
Now that you know how to spend your income, we need to discuss how to make that income possible. Tithes and offerings remain a primary source of income, but more and more churches have come to accept the necessity of fundraising for your church. Events, online campaigns, and community partnerships should all be part of your church’s fundraising plan.
Here are a few tips to ensure a good income through fundraising for your church.
1. Make it easy to donate
The days of collecting all the money your church needs during Sunday offering are gone. Many people do not keep cash on hand and feel safer paying their tithes and offerings online. If your church does not have a website that collects online donations, you miss out on a substantial amount of funds.
With Donorbox, you can have a donation page or embed a donation form into your website, or add a pop-up form to it in a matter of minutes.
The below image represents a simple church donation page hosted on Donorbox and used for accepting tithes and offerings online. The recurring donation form gives people the choice to opt for weekly donations. There is an option to select the preferred currency, write a comment for the church, and complete payment in 3 easy and secure steps. Check it out here.
2. Hold fundraising events
One of the first ways you can raise more funds and increase your church’s ministry is by holding events for the public. These events can include a family funfair, a Christmas concert, or a community volunteer day. Any event your church decides to do must fit your mission and spread God’s word.
There are several ways to raise funds at these events. Ticket sales, silent auctions, and raffles are a few fundraising options. You should also ask for donations to your church. A text-to-give campaign is an excellent way to encourage that.
With text-to-give campaigns, your church can share a campaign ID and text number with event attendees or church members. Donors will then send your campaign ID to the shared number and receive a link to your online campaign page. Donorbox makes repeat donations equally fast and easy. Your donors will send only a simple keyword to repeat the last donation – no filling out forms and inputting details required. Know more about Donorbox text-to-give feature here.
3. Offer financial transparency to your members
Trust is vital to collecting funds for your church. The best way to earn this trust is by being transparent with your members and donors.
A simple way to do this is by sharing your budget online. You can strengthen trust in your church and its leadership by allowing your donors to see where their donations go and sharing how you are fulfilling your mission by spending your resources responsibly. You should also share your church’s success stories with people to help them visualize the impact.
4. Make community partnerships
Community partnerships are highly beneficial when it comes to fundraising and growing your church. You should reach out to local restaurants, shops, and businesses with collaboration proposals. Most of them are interested in being a part of the local church’s events and programs.
It is a win-win situation for both. You receive sponsorships and donations from them while they are able to create a good image and brand value through such relationships.
There’s a lot to think about when you’re putting a church budget together, but it’s a vital process for safeguarding your church’s financial future. While expenses may remain in the front of your mind, fundraising, offerings, and tithes are essential parts of your church’s budget.
To help your church raise funds online, Donorbox has tips and resources to help churches raise more funds through online campaigns, memberships, and other fundraising activities. Learn more about our online donation processor, donor database, and other fundraising tools to help you reach your goals.