OK, first things first, box everything and wrap as nicely as you can (get creative). Even a pack of gum should be wrapped. Unwrapping presents is half the fun.
Hit the thrift stores. Around here, I can always find gently used board games for $2 or less. Same with DVDs (lots of kids titles) and books. Toys are more hit and miss, but it's worth a look. One Christmas when we had almost nothing to spend, I bought younger DD an old (but decent condition) Barbie cruise ship that she STILL plays with years later. Best $5 I spent
and it was a (literally) BIG present, so had a bit extra "wow" factor.
Go check out Dollar Store Crafts
. Great site with lots of fun and inexpensive things to make.
Things you can make for free or almost free with stuff you already have (or can get free - ask on freecycle):
Balance board (instructions here
, only with a bit of imagination and some paint, you can make yours look much nicer. These are FUN!! DH is making one for older DD this Christmas.)
Stilts (making "walking block" stilts with rope and 2 coffee cans, plus some paint or pretty paper to cover it with)
Race car ramp
Doll clothes (go through the closets and use fabric from worn/outgrown clothing)
Doll house (use scrap wood and fabric)
Doll house furniture (google this and you'll find a ton of ideas)
Knitting loom, if you have a craft-lover
Make "how-to" books in Word (with color paper if you have it), for example:
Book of Magic Tricks
How to Juggle (complete with some homeade bean bags)
... etc. What do your kids want to learn to do?
$1 Gifts (all things I've seen at our dollar store):
Candy / Gum
Diary / Blank books
"fashion dolls" (knock-off Barbies ... younger DD loves her Barbies and thinks these are also fun. Real Barbies are $5 at Target, if you want to splurge.)
Very cute headbands/hairbows
Cute, girly combs/brushes
"Fancy" bubble bath, lotions, etc.
I'm going to think about this some more. If I come up with any other ideas, I'll post them.