There is no shortage of definitions of a budget. A quick Google search on “define budget” will yield a variety of results like these:
- Cambridge Dictionary – “The process of calculating how much money you must earn or save during a particular period of time, and of planning how you will spend it:”
- Investopedia – “an estimation of revenue and expenses over a specified future period of time and is usually compiled and re-evaluated on a periodic basis.”
- NerdWallet – “A budget is a way to balance income, expenses and financial goals for a specific length of time.”
My favorite has always been John Maxell’s, “A budget is telling your money where to go instead of wondering where it went.” These definitions apply to personal finances and operating a business or a church. When it comes to building a church budget, it’s a matter of demonstrating stewardship (management) of the financial resources God entrusted to the church. The church budget is a way to provide accountability and fund the church’s mission and vision. While there should be a universal agreement that a church budget is necessary, the type of budget the church creates is more specific to the individual church. The list below defines the kinds of church budgets available and the strengths and weaknesses of each to help find the proper budget for your church.
Incremental (Line Item)
Churches with existing budgets and moderate changes to their annual donations and expenses may use an incremental or line-item budget. It allows the church to use the prior year’s actual numbers and add or subtract a percentage to create the upcoming budget. This method is a time saver, but it has drawbacks.
Strengths
- Utilizes Prior Data – The incremental budget takes advantage of the hard work put into prior budgeting.
- Saves Time – Instead of starting from scratch, the basics of the budget are built and only need minor modifications.
Weaknesses – According to the Corporate Finance Institute (CFI), the top three weaknesses of the incremental budget:
- Perpetuation of Inefficiencies – The budgeting process becomes little more than adding X% every year instead of evaluating each category.
- Budgetary Slack – Overstating the actual need to appear the department comes in under budget.
- Disregard for External Drivers – Much like the perpetuation of inefficiencies, a standard inflation rate yearly does not consider the actual economic changes. The post-pandemic economy is quite different than the pre-pandemic one.
Value Proposition
In the business world, a value proposition budget determines the value of each budgetary item and decides if the value outweighs the cost. This type of budget may look a little different for a church, with some churches requiring fundraising to support certain ministries.
Strengths
- Places a high value on evaluating the need of the ministry.
- Evaluates whether each ministry/program effectively fulfills the needs of the church.
Weakness
- Essential functions of the church may not raise the necessary funds.
- Potential to overfund/overvalue non-essential ministries.
Zero-Based
As implied in the name of this type of budget, it starts with no assumptions; all department and ministry budgets begin with a zero and build from there. It’s such an effective way of budgeting for churches that the Evangelical Council for Financial Accountability (ECFA) recommends using a zero-based budget.
Strengths
- Ensures each ministry and operational area evaluates its plans for the upcoming year.
- Reduces lazy budgeting that often accompanies incremental budgeting.
- Provides opportunities to grow leaders within the church.
Weakness
- The time required to build a budget from zero.
A church budget is a way for the church to demonstrate stewardship over its financial resources. It establishes accountability with the congregation and ensures the church allocates the resources to fund the mission, vision, and values. When it comes to church budgets, it doesn’t matter if your church decides to use the incremental budget, value proposition budget, or the zero-based budget as long as your church creates a budget.
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