Gallup did a poll some years back and found that 33% of households kept a formal budget.The adopting and living by a budget is really the first step for anyone wanting to feel more secure in their finances. The same is true for the church. While the vast majority of churches adopt a budget, few live by that budget.Why is that? Because most of them adopt a bad budget. The budget is usually unrealistic, doesn’t support the church’s vision, and feels like a waste of effort.
In our work with churches, Sheri Meister and I have identified three principles that will change the way you budget.
Know your bottom line: You’re not the Federal Government so you can’t spend money you don’t have.
Include your long-term goals: You should be looking forward to more than just surviving the year.
Tell your story in numbers AND words: Go through the exercise of creating a narrative budget.
The first two will honestly be the most difficult and bring the most resistance. You will have to push forward because your church’s financial future depends on it.
As an accountant, I love a line item budget. It speaks to me as clearly as a short story, but I’m in the minority. The vast majority of people need to hear the story in order to understand the budget. They don’t need more numbers. How do you transform your budget into a meaningful story about how your church is and is planning to impact this world? That’s what I walk you through in this video.
A narrative budget is a lot of work. Is it worth it? If a narrative budget helps you align your budget to your mission and helps your congregants see how their giving is making a difference, what is that worth? That’s like hiring a leadership consultant mixed with a capital campaign consultant which would normally costs thousands.
Sometimes church are criticized for having so much of their budget go for personnel, buildings, and administration. Sometimes church leaders (and especially the pastor) feel guilty about this too. On average, about 80% of a church’s budget goes towards these things. Church budgets rarely include estimates for designated giving although churches plan on and depend on designated gifts for youth activities and to support missionaries and to feed the hungry. Why not include designated gifts in the budget? It’ll make your church’s budget look better and may more accurately show your ministry strategy.
Like individuals and families, the church also needs an emergency fund. Assuming that the Holy Spirit hasn’t told you specifically otherwise, not having an emergency fund doesn’t show your reliance on God. It shows your lack of respect for the work of God. Emergencies happen…COVID-19, flooding, fires, and tragedies happen. Do you care enough about Jesus Christ to prepare for the emergencies so ministry doesn’t have to go on hold while you scramble to respond? I walk through how to actually build an emergency fund.
The other danger is for these emergency funds to take on a life of their own. A lot of church trustees have a savings account or checking account that acts as an emergency fund. I’ve heard plenty of stories where the trustees abuse their control of these funds to try to control the mission of the church. That’s an issue that can be solved as well by getting clarity on the purpose and use of those funds. Sheri Meister of the Dakotas United Methodist Foundation addresses this in a recent webinar.
For those of you that are Dave Ramsey students, you probably appreciate the value of an Emergency Fund. This is useful when the car breaks down or you lose your job or if the furnace dies…in January. But what about those smaller emergencies that you haven’t planned for? When you have unexpected company and need to buy extra groceries or you finally run our of printer ink or the school fee you forgot about?
These aren’t exactly emergency-fund worthy so how do we care for them. Most churches just allow all their programming staff to pad their budgets to be prepared. Actually, if you’re the one program that fails to pad your budget, what do you do when the unexpected happens? I like Steve Stroope’s strategy of removing the padding and creating a simple process for when programs have an unexpected expense or opportunity. In this video, I illustrate the strategy:
For many churches, the program committees and staff worry about running the programs while the treasurer and finance committee worry about the money spent to run the programs. There is a constant tension here that isn’t altogether negative. Where it turns negative is when programming ignores the concerns of finance or finance ignores ignores the concerns of programming.
“People support what they help to create.”
Randy Hedge, Pastor of Madison UMC
That quote by Randy is key. How do you include the program committees and staff in the budget process? What are some helpful tips to getting good budget requests from these groups?
After you calculate the bottom line…how much income your church can expect to receive, the next step is to tackle the fixed costs: Personnel, Property, and Denominational Dues. In a typical church, these costs account for 75-85% of the operating budget…so it makes sense to tackle them first.
One thing to keep in mind is that these costs are not necessarily set in stone. As the church’s strategy for ministry changes, this often affects the staffing and property needs. But, for the most part, these are pretty stable from year to year. The most difficult part of this section is the decision on giving raises to church staff. Are they being paid a competitive rate…or even a legal rate? If we can’t afford a large raise, is there anything else that churches can do to tangibly show their appreciation?