When my son was really little we just had a family birthday dinner. We are a small family so was just four grandparents and one aunt and uncle. I think his fifth birthday was the first we did for a party.
We just asked the neighborhood kids he played with. I baked a cake and we had ice cream and kool ade. It was to be an outside party and had games planned as such, but it poured rain that day. The kids though had an absolute ball.
I drew a picture of a witch and taped it on the wall. Then, blindfolded the kids, gave them chewing gums, which they used to make warts on the witch. Did this on a basement wall. They made up some of their own games and I made a treasure hunt giving out little trinkets I had bought at walmarts.
We had a total of about seven kids there. And, he talked for weeks about his party and it cost very little.