Basic Needs Budget Methodology

Basic Needs Budgets are bare-bones budgets that show how much it takes for families to afford minimum daily necessities. Budgets are available for multiple family types in more than 75 localities across 12 states. This document describes the methodology used to estimate family expenses and calculate hourly wages. It also explains how users can create customized budgets using the Basic Needs Budget Calculator.

Family expenses

Rent and utilities

The cost of rent and utilities is based on the Fair Market Rent determined by the U.S. Department of Housing & Urban Development. This value varies based on state and city (or county) and number of children; Basic Needs Budgets assume a 2-bedroom unit for families with 1 or 2 children and a 3-bedroom unit for families with 3 children.

Food

The cost of food is based on the Low-Cost Food Plan developed by the U.S. Department of Agriculture, which varies based on family size and the ages of family members. Cost estimates are updated for inflation when applicable.

Child care

The cost of child care is based on data from the state’s child care market rate survey, using 75th percentile rates for center-based care (updated for inflation when applicable). In general, where states offer multiple rates depending on quality and other factors, the basic rate is used (exception: 3-star rates are used in Denver). Values vary based on state and city (or county) and child's age.

For two-parent families, cost also varies depending on the second parent’s employment status. When both parents work full-time, Basic Needs Budgets assume that the family needs full-time child care. When the second parent works part-time, Basic Needs Budgets assume that the family needs part-time child care. When the second parent is not employed, Basic Needs Budgets assume that the family does not need child care.

Health insurance premiums

The cost of health insurance premiums is based on the average employee contribution for employer-based coverage in the state’s private sector, according to the Medical Expenditure Panel Survey (MEPS) conducted by the federal Agency for Healthcare Research and Quality (for more information, see <www.meps.ahrq.gov/mepsweb/data_stats/quick_tables.jsp>). These estimates vary by state and reflect state averages for “family coverage” for a family plan that includes children.

Out-of-pocket medical

The cost of out-of-pocket medical expenses is based on data from the Medical Expenditure Panel Survey (MEPS) conducted by the federal Agency for Healthcare Research and Quality (for more information, see <www.meps.ahrq.gov/mepsweb/data_stats/quick_tables.jsp>). These estimates vary by the number of parents and children covered.

Transportation

For most cities (and counties), the cost of transportation reflects the assumption that parents commute to work by car and is estimated using the Economic Policy Institute’s Basic Family Budget methodology. This methodology relies on data from the National Travel Household Survey and the IRS cost-per-mile rate.

In cities with extensive public transportation systems, the transportation cost estimate is based on the cost of public transportation, as reported by the local transportation authority. To determine the adequacy of public transportation, Basic Needs Budgets rely on the local Self-Sufficiency Standard developed by Diana Pearce for Wider Opportunities for Women (for more information, see <www.wowonline.org/ourprograms/fess/>).

The cost of transportation varies based on state and city (or county). For two-parent families, cost also varies depending on the second parent’s employment status.

Other necessities

The cost of other necessities is estimated using the Economic Policy Institute’s Basic Family Budget methodology, which relies on data from the Consumer Expenditure Survey. It equals 27 percent of the sum of the family’s (unsubsidized) housing and food costs. In Vermont, the cost of other necessities reflects the Lifeline Telephone Service Credit.

Debt

Basic Needs Budgets do not include any debt payment; however, users can choose to add this expense (for more information, see Calculator Options below).

Payroll taxes

The cost of payroll taxes is calculated following federal tax regulations.

Income taxes

The cost of income taxes is calculated following federal, state and local tax regulations. Income tax calculations take into account the Federal Earned Income Tax Credit, the Federal Child Tax Credit, and the Federal Child and Dependent Care Tax Credit. State and local earned income tax credits, child care tax credits, and child tax credits are also included.

Hourly wages

Basic Needs Budgets assume that the family has at least one parent working full-time, defined as 40 hours a week, 52 weeks a year. For two-parent families, three sets of budgets are available with varying assumptions about the employment status of the second parent. Hourly wages are calculated as follows:

Single-parent family: annual budget / (40 * 52)
Two-parent family with both parents working full-time: Annual budget / (80 * 52)
Two-parent family one parent working full-time, one parent working part-time: Annual budget / (60 * 52)
Two-parent family with one parent working full-time, one parent not employed: Annual budget / (40 * 52)

Calculator options

The Basic Needs Budget Calculator allows users to create customized budgets by changing assumptions about basic family expenses. When users change expense estimates, the Basic Needs Budget Calculator adjusts payroll and income taxes to reflect the earnings level needed to cover the new budget. Overall budget numbers and hourly wages are also adjusted accordingly.

Rent and utilities

Users have the option of entering their own values for rent and utilities expenses.

Food

Users have the option of using their own values for food expenses.

Child care

Users have the option of selecting cost estimates for other child care settings included in the state’s child care market rate survey. Users may also choose to use their own values for child care expenses.

Health insurance premiums

Users have the option of selecting nongroup plan cost estimates for health insurance premiums, which are based on the lowest quotes provided by www.ehealthinsurance.com for a preferred provider organization (PPO) plan or point-of service (POS) plan with a $500 deductible, 20% coinsurance, and copayments of no more than $25. Quotes were not available from this web site for New York or Vermont; estimates for these states are derived from <www.ins.state.ny.us/ihmoindx.htm> and the Catamount Full Premium health insurance plan, respectively. Estimates vary based on state and city (or county), as well as by the number of parents and children covered.

Users may also choose to use their own values for health insurance expenses.

Out-of-pocket medical

Users have the option of using their own values for out-of-pocket medical expenses.

Transportation

Users have the option of using their own values for transportation expenses.

Other necessities

Users have the option of using their own values for other necessities expenses.

Debt

Users have the option of adding a debt payment.