I do have a party for each of my kids every year. My big boy's birthday is in April and he is now 4 and my little girl is right now in September and only so the parties are very different.
With my boy, the last two years we had gone to Monkey buziness, so it does turn out very expensive since only the place is around 300 dlls, then the cake, around 60, the food, another maybe 300, pizza, fruit and sodas.... I always expend a little extra because I do like to buy decorations (this year his party was race cars) but that is not really necessary and then the goody bags, wich depend on the amount of kids you have at the party you it can be around 4 dlls per bag aproximatelly.
For my girl. This year is at the house, with more adults and kids, since she is only two. I do not invite almost anyone from school since they still do not have the notion of "friends" (I only invited her teacher from last year since she loves her and her kids are friends with both my kids).
For this party I am focusing on decorations since I wan to take a lot of pictures, but I am making them myself, with paper flowers. The theme is butterflies. It is being cheaper because I am doing every little detail except for the food myself. For party favors I made some butterfly soaps, the bad is turning to be like 3 dlls per child. I am getting a clown that does magic tricks, face painting and balloons for $150 (and hour and a half) and then pizza (from Dominos) I do not think food will be more than 250 including a salad and drinks.
For this party I think that my most expensive thing will be the cake since I am buying it in the internet from a bakery in NY. It does not have any special design but they are delicious. I will put some edible butterflies on the top and maybe buy a fondant figure or name plaque. I think that the final cost for the cake will be around 100.
I am including little details like hand marshmallows and nice decorated popcorn bags plus butterfly cookies and my colors... always the details add up to the cost.
All this I do, because I really enjoy doing parties but you definitely do not need to expend a lot of money and still have a very nice party. I would think the basics are food with depending on what you choose can make it expensive or cheap. Cake you can get a good tasting cake at Sams or Krogers and would be extremely reasonably. The kids are going to have fun any way as long as there are other kids around, they will run and play and be happy just to be together so an entertainment is purely optional... you can still do something like arts and crafts, cheap ones from Michaels. And also the goody bags can be extremely reasonably priced. You can buy just a big bag from a mix of candies and the bags are cheap, you can even buy clear bags 20 for like 2 dlls.
In other situations, just a get together at mid afternoon for cake and sodas will do. It doesn't get any cheaper than that! No reason to no celebrate, right?
Again... as always everything is Personal Preference and Choice! There is people that simply do not care about parties and that is what works for them.
Good luck, hope I've been of help
M.