Needs

Needs summary:

Few of us have the income to buy everything we want. That’s why it’s important to learn how to budget for needs first, and then see what’s leftover for wants.
Needs have legal implications if you file for bankruptcy.
If the costs of your needs exceed your income, you must make changes or get help.

Needs definition and meaning

Needs is a concept used in household budgeting that helps us understand the difference between essential expenses and those that could be minimized or cut entirely.

Key concept: Needs are basic budgetary items required for the survival of a household.

More about needs

Needs are the most basic elements of survival—like the roof over your head and food on your table. Here's a list of common budgeting needs:

Rent or mortgage payment
Utilities like gas, phone, power, phone and internet service
Food
Transportation
Home maintenance and repair
Childcare
Homeowners, auto, and health insurance
Medical costs
Required loan payments and minimum payments on credit card balances

Needs come into play in several ways. If you end up in bankruptcy court, being able to cover your needs (or not) may determine how you're allowed to file. It can also determine if you're allowed to discharge student loans or certain tax debts.

Needs: a comprehensive breakdown

Needs are the most important part of any family budget. You shouldn't allocate money for discretionary expenses, aka wants, until you’ve covered the needs.

The popular 50/30/20 budget, for instance, sets aside 50% of your after-tax income for needs, 30% for wants, and 20% for savings or paying down debt. If you can't cover your needs with 50% of your income, the shortfall must come from your wants. The idea is to keep your spending on wants below what you spend on needs.

Expenses that fall into the needs category can sometimes also be wants. You need transportation to work. Fair enough. But you don't need a luxury sports car to get to work. The amount needed for a basic car (or public transportation if you live in a city) is a need. Any cost above that is a want.

There’s nothing wrong with having nice things as long as you understand where your money is going, have made a conscious decision to spend it, and can afford to spend it.

If your needs exceed your take-home pay, you may be heading for serious trouble. You can't spend more than you earn indefinitely. You’ll need to make big changes—either to bring in more money, reduce your cost of living, or get rid of debt you can't pay.

Steps you could take include:

Start a side hustle
Switch jobs
Ask for a raise
Get budgeting help from a credit counseling service
Move to a cheaper place
Get a roommate
Sell your car and buy a cheaper one
Contact a debt relief or bankruptcy provider

Needs FAQs

What's a no-spend month?

A no-spend month is a month-long challenge to save money. You only spend on essential needs and skip all the wants that can clutter up your budget. And you save the money that you would have ordinarily spent, which is a great way to start or add to your emergency fund.

How can I get ahead with my finances with MoLO?

We provide you our MoLO estimate based on your expected income minus expected spending as a simple way to see what you will have left over at the end of the month. You can “beat” your MoLO estimate by spending less or earning more than expected. This is a way you can challenge yourself to stay on budget and have more money left over compared to the previous month. Continue to build your money momentum so you can get in the habit of growing your savings to meet your financial goals.

What happens if I can't pay my debts?

If you can't pay your debts, start by making a personal budget. After you've accounted for basic needs, how much is left? The answer tells you how serious your problem is. If you can't even cover the basics, consider consulting a bankruptcy lawyer. If you can afford the basics but not your unsecured debts, you could try credit counseling or debt relief.

A credit counselor may be able to negotiate lower interest rates and fees so that you can pay off your debts in 3-5 years. Debt relief is when a creditor agrees to take less than the full amount you owe but considers the debt satisfied. You can negotiate with creditors yourself or work with a professional debt relief company.