Before you start a budget, it's wise to figure out what you consider life's 'necessities.' By doing so, you'll be able to figure out where to pare back.

A couple of years ago, my family and I moved out of Manhattan and into New York's Hudson Valley, partly because we wanted to pare down our lifestyle so we could save and invest more. I thought we were doing pretty well until our new neighbors, Marc Eisenson and Nancy Castleman, invited me for lunch.

I already had come to know Eisenson over the years as an advocate for a simpler lifestyle and had interviewed for various financial articles I'd written. An engineer by training, he paid off his first home when he was just 27 and wrote a book, "The Banker's Secret," to persuade others to buy their financial freedom by paying off their mortgages. Eisenson and Castleman also publish other financial books and newsletters through their Good Advice Press.

Still, meeting the pair caused me to rethink the advice I've always given readers on how to budget. Conventional wisdom dictates that you separate your spending into necessities, which are written in stone, and discretionary spending. Then you look for ways to cut back in the second category.

Understanding 'necessities'

Now I see that it's actually the definition of necessities that causes the problem. Necessities have a way of expanding to meet or exceed your income. As a college student, necessities for me included books, tuition, a pair of long jeans, a pair of cutoffs and some T-shirts. Today my list would bore you and embarrass me. But for this couple, necessities haven't changed all that much.

Clearly these two could earn -- and spend -- a lot more money. Eisenson once worked as an engineer. Castleman had a high-powered job in New York City. But they decided some years ago to create a more basic lifestyle. Eisenson decided to find out how little he could live on. "It was pretty damn little," he says. Too little, as far as Castleman was concerned. "I insisted on flush toilets," she says. But they set about creating a portable career that would provide them with what they needed to cover these basic needs.

Think before spending

They live in a comfortable house stuffed with books. They travel regularly -- to Florida in the winters. But they think carefully about every nickel they spend. An immense garden, which they both love to work, provides many of their needs.

Of course, their Spartan lifestyle is not for everyone. It's not for me. Still there's a money lesson here. Shrinking our notion of what is essential to the good life provides your best opportunity to budget. And it is budgeting that is the first step in defining and reaching for your goals.

So I suggest that you go through some form of what Eisenson did; of questioning everything you spend money on. To do that, you must look not just at your discretionary spending -- your membership at the gym, meals out, travel, weekend jaunts -- but also on what you consider necessities. That includes groceries, clothing, transportation, insurance, haircuts, dry cleaning, housing, furniture.

Cutting expenses
So pull out your records and set up a new budget. Make every single item negotiable. Jonathan Pond, the Boston financial planner who appears regularly on public television's "Nightly Business Report," suggests to clients that they make a list of four areas where they can cut back on expenses. If they can do it, why can’t you?

Reaching financial goals means living beneath your means. It's that simple. "People who don't get into the habit of living beneath their means will never achieve their goals," Pond says.

Finally, make saving the first item on your budget. When we moved out of the city, we decided how much money we were going to save every week. Every Friday, I write a check for that amount to the bank. If things are extremely tight that week, I might set the check aside and wait a bit before mailing it. But I never fail to write it. And I never fail to send it.