Last year for my sons 3rd birthday, we took him and his brother and sister to Chuckie Cheese. We had a coupon for tokens and were able to get 100 tokens for really cheap. We divided the tokens up and said when the tokens run out we're done. Of course, my oldest was done first, but my son loved it and still talks about it today. (We did not buy pizza, drinks or anything else only tokens and we let the kids know this before we went)
We invited friends and family at a certain time the same day to come to our house for pizza, and icecream cake. We did a pinata for the kids activity and everyone loved it. The whole party itself cost under $50 including the visit to chuckie cheese. We didn't decorate the house and each kid still got to go home with something.
And dollar store works wonders for party items, cake mixes and frosting.
My sons 4th bday is just around the corner and we are on a very tight budget. We've decided to do Chuckie Cheese again. With a coupon for 100 tokens for $12.50. I am making the cake(items from dollar store), and my husband has a friend who makes pinata's and are getting one from him for cheap. Just an idea I was thinking of, but have not weighed the cost yet, is to buy items for kids to make their own pizza. I have about 5 kids total at the party, and make appetizers for the adults. Or I am just going to use up my coupons for pizza and order pizza for everyone. Also, hamburgers and hotdogs are cheap for food.
And one yr. we did a bday party at a time we didn't need to provide food (which saved a lot of money) and everyone just came for cake and ice cream, pinata and kids left with their bag from the pinata.
It seems like every year my sons bday comes around and money is tight for us, I have to set a budget for how much I can spend, including his gift and I work from there. They are so young at this age that just having a cake and presents to open is the light of their day. Save your money now, b/c when they get older that's when it get hard to please for the bdays and they become more demanding. As I am finding out with my 11 yr. old daughter. And the parties don't need to be long and drawn out. I find that 2 hrs, max works the best for us and just enough time to get everything in that we want and the only acticity we do is a pinata and the kids love and look forward to it every year, yes, even my 11 yr. old still wants a pinata for her bday.
Good Luck!