Creating a Budget to Strengthen Your Ministry

Church Finance Basics

A church budget is a tool that works to balance finances with ministry. It is the financial road map for your church or ministry.

To begin creating a budget, there are really two options. The zero-based method or the method of budgeting based on historical church budget trends. The zero-based method is simply starting at zero, then evaluating and justifying each expense based on your church’s needs and vision. Be as specific as possible when creating your annual budget, giving attention to each individual month. Despite which method you choose or even if you use a combination of both, include the components referenced below.

This will include anything from tithes and offerings to rental income or tuition. Using past monthly giving trends will give you the best idea on how to plan for the months ahead.

In addition to ministry program and activity expenses, there are several key expenses that are important to identify and accurately measure early on including personnel costs, occupancy costs, and office expenses:

Personnel costs should be the easiest to measure, as staffing and compensation should be well established before the fiscal year begins. This will not only include salaries, but also benefits and payroll taxes. If you are needing to cut back expenses, one good way is to train volunteers to perform duties. A financially healthy church should spend no more than 45% of the undesignated tithes and offerings to personnel costs.

Occupancy costs would include everything from mortgage debt (principal and interest) to lease expense, utilities, telephone, insurance, repairs, etc. Basically, it includes any money you put towards using or running the building you occupy. Occupancy costs should cover no more than 25-30% of tithes and offerings.

Office expenses include advertising, printing, postage, and small equipment. This should all take up 10% or less of tithes and offerings.

Another critical piece of the budget to consider is cash flow. Cash flow is the net increase or decrease in the cash position after accounting for all income, expenses, debt services, and capital items. If you manage your budget correctly, the end result should be a positive cash flow. To help ensure your church has the funds needed to continue ministry you should be estimating cash flow each month.

One thing to consider while determining cash flow is seasonal attendance and historical giving data. Most churches will have attendance fluctuations throughout the year that affect giving patterns and ultimately cash flow. For this reason, it’s important to look at each month with its individual ebbs and flows. Cash flow will also help determine the best time for capital expenditures, growth, and expansion. As cash flow is projected, allow cash reserves to accumulate for times of emergency or decline in giving. A common practice for building cash reserves is to create your budget based on 90% of last year’s income. This tactic leaves 10% of your budget as a buffer to use as needed. Having enough cash reserves on hand to cover 3 months of operating costs will help prevent disruptions in your ministry.

As you plan your budget, keep in mind things like salary increases, hiring, layoffs, new programs, capital projects, and major fundraising efforts. Be sure to have a clear view of your church’s goals and be realistic on how to get there. The importance of a budget cannot be emphasized enough, because it builds a foundation of financial stability to maximize ministry and outreach.

Check out our free Church Finance Guide for budget templates, recommended budget percentages, and more.

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