Here's what I consider when looking at our budget and why. Sorry this is so long.
Health Insurance - Something I would never willingly cut from our budget to save money especially caring for 3 children and one on the way. I feel that it's just too much risk if something were to happen to one of us. I would scrimp on other things than go without.
Mortgage/real estate taxes/homeowners insurance -all of which is included in our mortgage payment, and needed or we lose our house...lol
Water/Sewer -we have city water/sewer so don't really have a choice, if you own a home, you have to pay this or they put a lein on your home.
Food - Everyone needs food to live, I could make due with a lot less than I eat now though... boy I'd like to lose about 80 lbs! (I do pay more money for local milk in glass bottles and try to buy organic foods for our family, which is somewhat of a luxury, I do feel that buying chips/snacks is a luxury also, but buying healthy fresh fruits/veggies and nutritious foods are a necessity)
Adequate clothing/shoes - having clothes that are functional for the seasons and not torn/ripped.
Trash - Pick-up is free each week but the bags cost $1.50 each, recycling pick-up is free also here our city, so the trash can be reduced if you recycle well, which I do.
Electric - You have to have some sort of light since it's dark here now at 4:30 in the afternoon.
Gas or heat of some sort - in MA you have to have some sort of heating for winter, we also use gas for our hot water/stove since it's cheaper than electric.
land line phone/cell phone - I feel is on the border, you can make due without a phone if need be. We went without many times when I was a kid. Since here you can still dial 911 from a land line even if you don't subscribe to a service, but as far as keeping in contact with dr's, school, family, and other important things I feel having at least 1 means of communication is necessary (be it a land line or cell phone) Sometimes I think you can even get away with having a pre-paid cell phone cheaper than having a monthly land line.
We have 2 vehicles and my husband drives a truck for the company he works for (technically isn't ours). I feel that us owning 1 car of our own that can fit our whole family is a necessity for us. This includes Car insurance, and having it registered in the state, regular maintenance, and gas to drive it. Having the additional car and the work truck is a luxury for us. Though we could rely on public transportation if we didn't have a vehicle at all, plenty of people in our city do, so I guess us even owning one vehicle is a luxury for us by some standard (just not mine...lol)
I think everyone should have basic necessities such as a place to live, food, electricity/gas or some sort of heat, some means of communication and transportation, and access to medical attention if the need arises. Those are all things that I feel are needed to survive.
Our Luxuries are:
Cable -Since you can watch all the basic channels for free (and it HD) if you have an antenna, paying additional for more channels I feel is a luxury. We have a boat load of channels, and some paid channels, I would love to get rid of the cable completely but MIL lives with us and pays rent and she watches way too much tv for me to get rid of it...lol
Cell phone and land line - We have both and I keep going back and fourth on the idea of getting rid of the land line, since the only people that call it are telemarketers and collection agencies for people we don't even know.
Internet - It would really really suck if I had to cut this out I almost feel that it is a necessity for me, but if I had to I could make do without it if it came to having food to eat or surfing the web...lol Unless I had no other means of communication (land line or cell phone) Then I could justify having the internet. We also have the internet on our cell phones which is a total luxury.
Us having more than one vehicle. I feel that is a luxury for us. I could wait until DH was home from work to go shopping or do the things that I do with my car, but having it is nice and makes life easier, luxury.
My husbands gym membership that he never uses! Totally a luxury!!!
Netflix - nice but totally not needed since we have cable tv
I donate items to the kids school for the class room, and give a cash donation for the yearly fundraiser - I like to do these things because they help the school, but they aren't a necessity.
Gifts for holidays, birthdays, and parties - There are plenty of people who don't celebrate these things for religious reasons, we could go without, but they make life fun, luxury.
DD's gymnastics classes - It's fun for her and she enjoys it but it's a luxury to be able to pay for her to do that.
Our pets - if times got really tough and it was a choice of feeding my children or 3 cats, the cats would go. I love them to pieces but not as much as my children even though I've had the cats a lot longer than the kids have been around. Plus the cats are a PITA because I get stuck scooping the poop all the time, so actually, gladly they'd go.
We get fast food/ take-out like once a week or so and DH gets coffee from Dunkin Donuts here and there (he's cut back a lot because I'm sick of him bringing home Styrofoam cups and throwing our money away when we have a working coffee pot at home), I could make a meal at home the times we eat out and save us some money, but it's convenient, luxury.
We don't really do anything extra like getting professional hair cuts (DH does maybe a couple times a year), I don't go to the salon to get my nails done or any other beauty treatments. Having a cleaning service, getting our cars professionally cleaned.... I have a hard time with paying someone else to do something that I can do myself for a lot less money...lol Things like vitamins go in with our food budget and medications go in with our medical expenses so they are necessities for us.
We are paying off credit card bills that we used to buy luxury items, things like our high def tv, wii, play station 3, camera, camcorder, and other fun stuff like that. All of which I now realize that we could do without. We're still in the process of learning how to define needs/wants and using our money wisely. Having luxuries are great if you can afford the luxuries you have, when we put things on credit cards, we obviously couldn't afford the luxury at the time :)