How to budget by principle, not knee-jerk

If you’ve grown up in church (which I have) then soon enough the talk around personal finances comes up. The talk goes a little like this: Spend less than you earn, give your first 10% to God, save your second 10% and the rest is for spending. And it’s great advice, advice I try to live by.

It’s strange, then, that the very advice we give to our congregants is advice that many church leaders don’t exercise on the church finances. So often churches are overspending, not creating a healthy budget and not sticking to it.

Also, there’s often no alignment between a church’s plans and its finances. The simple fact is that if your finances don’t align with your vision, you’re never going to achieve it.

At thinking.church we are not financial advisors, however we are strategy facilitators, and that means we can help you think through the strategy of finance. Disclaimer: This article is in no way financial advice.

Finance is a role that should sit with your board of trustees, but setting the spiritual direction on the principles around finance is still a job that should be done by the leadership team of a church. However, you should work with whoever runs your finance when putting this into action.

DEFINING EXPECTED INCOME

Before you can set what you’re going to spend, you’ve got to determine how much money you have to work with. There are 3 ways to determine your expected income for the year. The first is Faith. Budgeting by faith is where you believe that God is going to grow your church (and therefore your income) by a certain percentage, and then you put that amount in as your expected income. Whilst it’s good to be faith-filled, this is an irresponsible way to run a charity. Budgeting by faith is, as Tony Morgan puts it, “Budgeting by Stupidity”.

The next option is to budget by trend. This is where you look at the last few years’ income and work out the trend, then budget based upon that trend, whether up, down, or flat. This can give you a good idea as to the likelihood of income, but there are no guarantees. If your church income has grown by 5% each year, it doesn’t mean it will grow by 5% this year. It only takes a COVID-like situation, a downturn in the economy or any other unseen factor to change a trend. A trend is not a guarantee.

The third option is to set your income flat based upon last years’ income. If you got that amount last year, you’ll get the same this year. This is specifically designed that any growth then becomes a bonus, not an expectation. The downside is that each year can be very different, and if your church is in decline, flat budgeting is still over-budgeting.

Ideally, there’s a happy medium to be found between trend and flat, and probably looking at the most conservative estimate between those two is the most responsible way think.

Budgeting in this manner doesn’t mean you lack faith, it just means that you’re not needing God to come through with a miracle because you’ve budgeted poorly.

BUDGET BY PERCENTAGE

When setting a spending plan, set your priorities based upon percentage rather than numbers. This means that your plan is scalable as you grow, but your priorities remain the same.

Having tracked the budgets of healthy churches over 5 years, what's incredible is that the percentages stay almost the same, even when the church has grown rapidly. Budgeting by percentage put the focus back on to principle, rather than amounts.

MARGIN

Remember the old phrase of “spend less than you earn”? well this still applies for churches too, but with a slight difference. In a charity, you are responsible for using the donations to achieve the aims of the charity. You are not allowed to take profit. But that doesn’t mean that everything needs to be fully budgeted. You can still remain a margin that can then be used as and when it is needed throughout the year. Budgeting this way give you flexibility and the chance to remain attentive to the ever-changing needs of your community. Imagine how your church could have helped during COVID if you had a margin available? It is therefore important that you set a percentage that will be kept as a margin, but it is also important that there is an agreed point in the year that if it hasn’t been spent you’ll hold a meeting to work out how to use it, whether as savings, generosity or anything else. Now that’s an exciting meeting to be a part of!

CEILINGS

Ceilings are the limit to a room, and in your budget, they are the top percentage you won’t go above on a certain item. For instance, with staffing, it is wise to set a ceiling for how much you spend per year on personnel. For many churches that might be 30%. The crucial point is that you don’t go above it. Why? Over-staffing is one of those things that can inhibit volunteering, uses up money that can make ministry more effective and stops you saving for growth. Another ceiling is debt repayment. By setting a ceiling percentage of, say, 10% you know that you won’t take on a mortgage that means repayments are above 10%. This helps you make better decisions based on principle, not emotion.

FLOORS

Just like ceilings, you also need floors. This is where you agree to not go below a certain percentage for budget items. A good example for this is your generosity fund. Just like we encourage our congregation to tithe at least 10%, our churches should also set a floor for what it gives away. By setting a floor, it means that competing budget requests don’t down out the need for generosity.

Similarly, every church should be seeking to find ways to reach more people for Jesus, and that’s what an expansion budget is there to do. If you don’t set a budget for expanding, it makes it much harder to achieve. For churches looking to plant more churches or to be a multisite church, an expansion budget is even more important. Make sure that you set a floor percentage for growth, otherwise you’re not set up to grow when needed.

RAMIFICATIONS

The ramifications of setting these priorities will mean tough decisions at points. Setting a ceiling on staffing may mean not going for the hire that you really want, or if your church has declined in income, making some tough calls on redundancies. However, the priority of the church is to move towards to the mission God has given it, and that can mean making tough calls from time to time.

DON’T HIT THE PANIC BUTTON

There’s a worry that when you set budget priorities that you’ll suddenly need to make lots of people redundant or make drastic changes. A wiser approach is to aim to achieve this within 5 years by making gradual changes towards to plan. You don’t need to go for the nuclear option.