Simple or complex, detailed or general, granular or big picture? When it comes to creating a church budget, these are the pressing questions that can keep the financial team debating for hours, days, maybe even all fiscal year. Over the years, I’ve swung the pendulum from too simple to way too complex. Regardless of how detailed or general you think your church budget needs to be, these categories are essential to set up your church budget effectively and produce meaningful reports.
Core Church Budget Categories
If you are new to the church budgeting process or just curious about how other churches set up their budget, these are the categories that I would consider core.
- Offering/Donations – While some churches may generate additional income from room rental agreements on the facility, parking lot, selling books, and other streams, donations and offerings are the primary way churches generate income.
- Compensation – Unless your church runs entirely on volunteers, it is crucial to understand the amount your church budget dedicates to paying the staff. A category this important requires sub-categories like salaries, benefits, taxes, and retirement.
- Facilities – This category includes a wide range of areas related to the building(s) use. Some essential Facilities sub-categories include supplies, inspections, maintenance & repairs, safety, monitoring (fire & security), and utilities.
- Operations – If you asked most members of your church what they want their offerings to fund, Operations are typically not going to hit their list. However, the church cannot function without an operational budget. The essentials needed to operate the non-ministry side of the church like information technology, office supplies, commercial insurance (this is essential!), and financial expenses (think fees) belong here.
- Ministries – Every budget component needs to contribute to the mission, but the Ministry category is where the rubber hits the road. Ministry is where a church funds strategic initiatives like outreach, groups, adult ministries, children’s ministries, Sunday morning experiences, and volunteer appreciation.
Key Non-Expense Categories of a Church Budget
The core categories listed above contain references to suggested sub-categories that can fall within the specific major category. When determining the level of granularity of your budget, keep the end in mind. If the level of detail created in your budget does not serve a purpose, like generating a specific report to evaluate the actual expenses, it’s probably unnecessary. In addition to the sub-categories mentioned above, the following non-expense categories are key when building a church budget.
- Sinking Funds – When creating a church budget, the tendency is to maximize money invested in ministry. The mission of your church rarely includes a statement about replacing the roof in 20 years. However, that doesn’t mean your roof won’t need to be replaced in 20 years. A sinking fund is a way to set aside money now for an expense later. I recommend at least three sinking funds that a church budget should have – roof, HVAC, and sound system. These are all big-ticket items that require replacing at a scheduled interval.
- Savings – In the same way a person should fund a savings account that can carry 3-6 months’ worth of expenses, a church needs this same kind of emergency fund, but not to the same degree. The church budget needs to be intentional about building this fund through the budget.
- Mortgage Principle – Obviously, this only applies to churches carrying a mortgage. If your church has a mortgage, the interest shows as an expense, but the principle does not. Be sure it’s part of your budget plan.
Putting together a church budget requires patience, collaboration, strategy, thought, and prayers. There is no one-size-fits-all approach to taking on this necessary task. Smaller churches do not need a high level of detail in categorizing their chart of accounts. As a church grows, the need for more detailed reporting increases and the number of categories will grow. Using a solid base of core, sub, and key church budget categories provides a foundation to build a dynamic budget that effectively plans how the church will fund its mission.