How to Avoid Budget Inflation

How to Avoid Budget Inflation

With inflation running nearly double digits and an economy filled with uncertainties, how should your church prepare for next year’s budget? Our team at the Stewardship Journal probes that question in our lead post. It’s budget planning time for many churches and setting a budget that can’t be met is a self-inflicted wound that often plagues Finance Committees. We call it Budget Inflation.

What is Budget Inflation? Budget Inflation is the percentage beyond realistic expectations you are currently attempting to run your church by. Regarding budget planning, we advise using a standard increase of 2% to 3% beyond last year’s revenue. If your past giving numbers don’t support that increase, any increase above last year’s giving is your budget inflation. Budget inflation is the number one reason churches get so far behind that they can never hit their budgeted number. It’s also the number one reason for burning out your donors. Let’s help you avoid that with some practical advice.

First, let’s establish why budget planning is so important from a donor’s standpoint. There are three classic reasons why donors give to any organization.

  • First, they believe in the organization’s vision.
  • The second reason is trust in the leadership of the organization.
  • Then, finally, they must have confidence in the fiscal responsibility of how the organization handles money.

Good budget planning and implementation help you with the second two reasons: you want to plan carefully and execute your church budget effectively. The reality is…

When you fail to hit or come close to making your budget, it impacts how your donors view you.

Why is budget planning important for you? Here are a few key reasons why you need to plan well your next year’s budget…

  • Poor planning almost always guarantees you will NOT make the budget.
  • Poor planning can cause you to lose momentum.
  • Poor planning forces you to make tough decisions later in the year.

Here are the common mistakes churches make in budget planning…

  • They over-estimate their potential. Without question, this is the number one mistake.
  • They base their budget on need, not reality.
  • They ignore trends or never are aware of them.
  • They set it and leave it.
  • They have no plan for increasing givers and giving.

What steps should you take in planning your budget for 2023? Here are some thoughts:

  • Start by reviewing your current giving. What percentage are you behind or ahead of last year? Make sure you take this into consideration in budget planning for ’23. If you are ahead now, don’t go crazy with an increase in your budget. Any increase in your budget should be small and must be supported by existing growth in attendance and giving over the past year. If, however, you have experienced a decline in giving, then,
  • Freeze or decrease your ’23 budget from your 2022 budget. Be realistic. We are not out of the woods yet, and much of our future is unknown.
  • Consider setting your budget on a six-month schedule rather than twelve-month. Survive the first six months then you might be able to increase the budget.
  • Cut the fat and advertise the cuts. You want to show your donors you are fiscally responsible.
  • Get a plan and work your plan. Without a plan, you are planning on failing.
  • Start early. By this, we certainly mean the planning process and the “selling” of the budget to your donors. The key is to help them know the stories behind the numbers. Remember, people give to life change, not a spreadsheet.
  • Get your leaders on board first. If your leaders are not on board, you won’t make budget.

Every budget is a crucial budget. Each line item represents a ministry or mission that your church supports—each of those impacts scores of people. Your team’s work today will impact your ability to fund these needed works for the Kingdom. Given our time’s economic uncertainty, we must set our budgets correctly. One key is avoiding budget inflation.

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