I have tenants who have been perfect in paying rent on time for almost a year. Last month, the woman lost her job, and when I went to collect the rent the other day, she said she didn't have any money. I'm pretty sure they used part of it for a car payment and the electric bill, and I know they need these things. Still, I'm torn over how to handle this and how much mercy to show.
You're right, what they spent the money on were things they needed. At the same time, they probably knew the rent was due and when it was due. Since you know about their situation, and you're their landlord, it might be a good idea to offer to try and formulate a plan that would help them get through this tough time.
If it were me, I'd sit down with them and make a budget and list of priorities. Food comes first, water and lights after that, then rent, and finally the car. Get into their business a little, and find out what else is going on in their lives. You have to be fair and firm to be a quality landlord. I'm all about helping people who need help, so I'd be willing to cut them some slack if they're cooperative and literally have to choose between feeding their kids and paying me. But if they insist on misbehaving with their money or having parties on the weekend, I'd have no problem telling them to check out and find another place to live.
The biggest thing is to treat them the way you would want to be treated if the roles were reversed. I think most people want to do what's right, but you want to feel good about extending mercy when, and if, it's appropriate.