Why Percentage Based Budgeting is So Helpful

In my post How to Spend the Money I laid out four categories of spending as well as recommended percentages for each category. Now I want to talk about why these categories and recommended percentages have been so helpful to me.

1. It helps your board of directors determine an appropriate pay package for you. Your board will decide your base salary, benefits (i.e. health insurance, retirement) and bonuses (i.e. like an end of year performance based bonus where you can earn up to 5% of your base salary). Knowing what percentage of what comes in will go towards Personnel will help them determine what your pay package should look like.
2. It helps you know when you can and can’t afford to hire support staff. If you, as the lead pastor, have a base salary, health insurance, retirement, an end of year performance based bonus and a surplus within the 55% (or whatever percentage you and your board of directors decide to use), then and only then should you begin considering using some of that surplus to hire additional staff. For example, if after your needs are provided for, there is an additional $500 per month in the Personnel section of the budget you may want to consider hiring a part time staff. If your surplus is closer to $50,000 you may want to consider hiring a full time staff.
3. It makes sure you never spend too much in one category at the expense of another category. For example, if you spend 75% of your general fund on Personnel you would never have enough money to properly fund the Programming or Facilities or Missions section of the budget. If one of the categories is gorging on the general fund, another will starve. But when you adhere to the recommended percentages you will have the money you need for each of these four important allocations.

Here are some questions that become easy to answer when you establish the four categories we’ve been talking about as well as the recommend percentages for each:

• How do you know if you’re ready to begin supporting another missionary? All you have to do is ask: Do I have a surplus in the Missions section of the budget? Can I support them at $100 or $200 a month and still be within the 10% allocation?
• How do you know if you’re ready to take on that Constant Contact monthly subscription? All you have to do is ask: Do I have a surplus in the Programming section of the budget? Can I pay the $40 a month subscription fee and still be within the 20% allocation?
• How do you know if you can afford that high school, movie theater or hotel ballroom for your church plant? All you have to do is ask: Can the expense fit within the 15% allocation we have for Facilities?
• How do you know if you can afford to hire a part time or full time staff member? Figure out what you would need to pay them a month and then look to the Personnel section of the budget to see if you have the surplus needed.

I honestly don’t know how I would personally make good, educated, financial decisions without these established categories and set percentages. They have been and continue to be most helpful!