Guidelines for a Healthy Church Budget
We are going to unpack guidelines for church budget in this blog.
For years I worked with great churches in the establishment of their budgets. One thing I learned. Percentage guidelines for church budgets are helpful, but always need to be fluid in their application.
Every local church is a unique microcosm of God’s Church. Each church has to prayerfully consider their mission, culture, history and future to determine how the proper allocation of budget dollars should play out.
In this post we’ll look at the following:
<How is a Budget Different than a Financial Statement?
Four Ways to Reduce Percentage Spent on Compensation
(NOTE: Do you need to trim back the church budget? Click here)
How is a Budget Different than a Financial Statement?
At the outset, I remind churches that a budget is different than a financial statement.
1. A budget shows you how you plan to spend your money BEFORE you spend it.
2. A financial statement shows how you spent your money AFTER you spent it.
There is a big difference. Far too many churches literally do not have a budget. They think because the treasurer, bookkeeper or administrator shows them a monthly financial report that they are good to go. Not even close. Not good!
A wise and discerning pastor/leader will always count the cost before doing anything, i.e. Luke 14:28. If you’re going to do something, it is critically important that you sit down in advance and count the cost. Before a church embarks on its calendar or fiscal year it must be diligent in planning expenditures, a budget.
The most common question I get as it relates to budgets is, “What percentage of our budget should go to salaries?” Salaries and benefits are almost always the single largest line item in any church’s budget.
The numbers I have seen over the years for total compensation percentage have been in the 33 – 50% range. I provide you three illustrations below. Smart pastor/leaders confirm where they are in comparison to recommended percentages; either on target, a bit high or a bit low. With compensation, if they are too high these churches put a plan in place to reduce the percentage spent on compensation – tightening the belt.
Four Ways to Reduce Percentage Spent on Compensation
1. A church can intentionally try to raise income. In doing so, the percentage spent on compensation will decrease. I am amazed at the number of pastors who either are hesitant or refuse to preach on tithing. You should preach on tithing not because the church needs the money, rather because of the admonition of scripture. For those who tithe, they understand the blessings of the Lord that come as a result. And the church is able to have more effective ministry, in this case, aligning their compensation paid to income.
Come on people! Tithing is biblical, so if you are the leader you need to preach tithing. Practice it yourself and then preach on it.
2. A church can reduce everyone’s compensation package. This is nowhere near fun, but it does save peoples’ jobs. For easy math, if you need to reduce the equivalent of one person’s compensation and you have five employees of equal compensation, it is way better to reduce all five of them by 20% rather than terminating one full person.
3. Some churches take a passive approach, which I do not recommend at all. These churches try to let the income catch up with the compensation levels. I call that a “hope” strategy. Do nothing and hope it all works out. Trust me. It doesn’t.
4. A last resort is to let a person or persons go. This is miserable and everyone feels like they lose when this happens. But in the worse of cases, sometimes it needs to be done.
(NOTE: Do you need to trim back the church budget? Click here)
My recommendation is to start with trying to raise more income, then go to reducing everyone’s compensation and end with dismissing employees. Never, ever do the “hope” strategy.
If your percentage for total compensation is too low this is an opportunity for the church to improve compensation for staff. However, be careful to not just spend up to some pre-determined percentage just to say you’ve done it. Do not pay people more just to match a percentage figure.
Relative to other big bucket items allocated from the church’s general fund (tithe) budget, if you are doing 50% to compensation, I recommend the following for the others:
Illustration A
- 50% to compensation
- 10% to savings
- 10% to missions
- 15% to building expenses i.e. mortgage, maintenance, custodial, etc.
- 15% to ministries, evangelism, youth, children, etc.
My understanding is it that the Association of Related Churches (ARC) suggests these percentages. Then each budget year you base the annual income budget on 90% of the previous year’s annual income. Any difference you have goes toward your savings. This savings can then be used for capital improvements or advanced ministry.
Illustration B
- 35% compensation
- 35% building (maintenance and capital improvements)
- 20% ministries
- 10% missions
Another way to allocate money is to do 1/3, 1/3, 1/3. It would look something like this.
Illustration C
- 33 1/3% compensation
- 33 1/3% ministries
- 33 1/3% building (maintenance and capital improvements)
One of the things not to do is, when you save in one area, do not automatically go spend in another unless you are doing things to position the church financially for future expansion, building, etc. I understand that in our debt-crazed culture, savings is not popular. But I can tell you, whenever you can save for the future, you really need to take advantage of that opportunity.
To the extent that a church’s line item is less than recommended in one area, that allows the church to allocate more in another area. For example, in Illustration A above, if a church has 40% going to total compensation, they may be able to increase allocation 25% to ministries or split the 10% (50%-40%) compensation difference with 5% more going to mortgage pay down and 5% going to ministries.
Smart, growing churches will save unspent dollars to strengthen their capital improvement capacity in the years to come. In other words, in our example above they would take the additional 10% (50%-40%) and either pay down on their mortgage, save or do a combination of both.
When It’s All Said and Done…
The total expenses have to add up to 100%. Too many churches fly by the seat of their pants and spend 105% or 110% of their total income. In doing so, they fall behind in budget and move into more and more debt. This is a loser. Do not spend more than you take in.
Whether you use Illustration A, B or C, the point is to land on one of them and stick with it. Any of them can work. However, wise pastors and church boards regularly re-evaluate to put more and more to savings and increase the ability to expand ministry.
At the end of the day, churches need to be the best in how they budget their financial resources to the mission the Lord has given them for their community.
Churches that think, pray, plan and execute well-thought out budgets see the best results for the Kingdom. Those that do not fall woefully short in being the stewards God has called them to be.
The wise and discerning pastor/leader of God’s church – your church – does all they can to be the best stewards in budgeting His resources.
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