When you consider everything necessary for your church to make the greatest possible impact, bringing in sufficient revenue is probably on your list. However, another factor that might not come to mind right away (but is just as important!) is strategically allocating that revenue and planning all of your church’s major financial activities to maximize your resources.

Budgets are essential tools for accomplishing the latter task. These documents lay out your church’s projected revenue and expenses for a given time period or initiative, helping you ensure you can accomplish everything you want to for your congregation and broader community while keeping your operations running smoothly.

In this guide, we’ll walk you through the process of church budgeting in four basic steps to lay a strong foundation for creating your next budget. Let’s get started!

1. Define Your Budget’s Purpose

Although all types of budgets predict revenue and expenses, your church may find that some are more useful than others for your specific goals and structure. Jitasa’s budgeting guide outlines the following five different types of budgets that churches and other tax-exempt organizations often create:

  • Operating budget: Probably the document that first comes to mind when you hear the word “budget,” this is the master financial plan that details all of your church’s expected revenue and expenses for a given fiscal year.

  • Fundraising campaign budget: This budget helps you plan the upfront expenses associated with events or other highly involved revenue-generating activities so that you can make sure to cover these costs while also raising plenty of funding for your mission.

  • Capital budget: This budget is similar to a fundraising campaign budget in that it focuses on upfront spending on a revenue-generating activity, but it usually covers larger-scale, multi-year initiatives like capital campaigns.

  • Program budget: Launching a new program often comes with many one-time costs, so you may create a separate budget for that new mission-related activity to help you differentiate between its startup and recurring expenses.

  • Grant proposal budget: These budgets are common components of grant applications, and they show how your church would spend grant funding if you won it and what other revenue you’d supplement that grant with to let funders know you’d use their money wisely.

For the purposes of this guide, we’ll focus primarily on operating budgets because your church definitely needs to create one every year, while you’ll develop the other types of budgets more sporadically. However, don’t be surprised if you encounter more than one style of budget, and when you do, ensure you understand their scope.

2. Review Financial Data to Inform Your Goals

Your church bookkeeping system—whether that’s a detailed spreadsheet or dedicated software—should contain all of its financial data from previous years. As you start creating your annual operating budget, review your records of spending and revenue generation to set realistic, data-backed goals for various expenditures and funding sources for the coming year.

For example, if your data shows you brought in $22,000 from fundraising events this past year and your event attendance and overall church membership numbers are increasing, you might set a goal to raise $25,000 in event revenue next year—high enough to push your team, but not so far out of reach that it’s demotivating.

In addition to revenue and expenses, NPOInfo’s data collection guide recommends reviewing your church’s cash reserves that would allow you to cover costs in case of emergency or while building capacity. If you don’t have enough cash on hand to cover three to six months’ worth of operating expenses, make building up your church’s savings a priority as you budget.

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3. Organize Expenses by Function

When you actually start creating a church budget, it’s usually easiest to develop the expense side first to maximize flexibility throughout the process. To promote transparency and align your operating budget with your church’s other financial documents, organize expenses based on how they impact your church’s mission using the following categories:

  • Program costs are directly related to your church’s ministry. This category encompasses a wide range of expenditures, from children’s Sunday School curriculum to travel expenses for mission trips.

  • Administrative costs (also called management and general expenses) are necessary for your church to operate day to day. They include rent or mortgage payments on your building, utility bills, insurance, office equipment, and employee compensation.

  • Fundraising costs are the upfront expenses associated with revenue generation, which need to be accounted for in your operating budget as well as individual campaign budgets. These often include software subscriptions, consulting fees, event planning, and marketing material creation.

Administrative and fundraising expenses combined make up your church’s overhead. While some overhead costs are fixed (e.g., mortgage payments tend to be the same every month) and some would be unwise to reduce too much (e.g., “free” fundraising software often doesn’t work as well as paid solutions), you should try to put as much of your church’s funding toward its programs as possible and be strategic about overhead spending.

4. Categorize Revenue by Source

Once you’ve drafted the expense side of your budget, outline your revenue by source before reviewing both parts together and making any necessary adjustments. Using funding sources as categories for this side of your budget is helpful for goal-setting because your church probably brings in many different types of revenue, such as:

  • Individual donations, including monetary gifts of all sizes (small, mid-sized, major, and planned) and in-kind contributions of goods and services.

  • Corporate philanthropy programs, like event sponsorships and volunteer grants.

  • Earned income from merchandise or product sales and service fees (e.g., registration costs for your Vacation Bible School program).

  • Investment returns from vehicles like endowments, stocks, bonds, CDs, mutual funds, and even cryptocurrency.

  • Grants provided by foundations or denominational organizations.

Some of your church’s revenue—particularly grants, sponsorships, and major and planned donations—may be restricted, meaning it has to be used for a donor- or funder-designated initiative. Make sure to allocate these funds to the correct expenses first so you can honor restrictions and easily see how much funding you have left to cover your remaining costs.

Your completed church budget will likely need to be approved by your board or other internal governing body (and, in some cases, its members) before it goes into effect. After your operating budget is finalized, sit down with your church’s leaders and finance team at least once a month to review your spending and fundraising progress and continue adjusting your strategy as needed so you’re always leveraging your resources as effectively as possible.