I decided to put just enough money into equipment to get the job(s) done and get creative about the (in my opinion) lesser items.
For instance: I put more into a camera than I intended when I bought the Panasonic DVX100. Even in retrospect I don't regret the decision and I expect this camera to last me a long time, however quickly technologies change.
I put a little money into audio equipment. A cheap shotgun mic that I'm thrilled with. The more I use it the more I like it. My boom kit, on the other hand, is a collection of pole extensions from a local job lot store. Not fancy but good enough to get the job done.
My lighting kit is an odd collection of halogen work lights (two 500w on a tripod, four 250w clamp models) with some home-made diffusers (shower curtains are wonderful material for this.)
For editing, an old and well-worn copy of Premiere 6.5 is sufficient. I haven't found compelling reasons to buy an upgrade. Until there's a really, really good reason for purchasing something else or upgrading, I'm comfortable making do with what I've got.
I won't mention the computer hardware... had that long before I started in movies. But again, until there's a concrete need to upgrade the hardware (or throw another machine on the network) I won't consider spending any more.
One cool by-product of having this equipment is the ability to generate some quick cash with it. Being involved with community theater, I'm becoming the preferred videographer of choice with local groups. I tape a performance and burn DVD's for the cast - unit cost is less than $1 and I charge $10 per DVD.
All that having been said, I guess the simple answer to your question is that I carefully consider each major purchase and ask myself whether (a) it's absolutely necessary; (b) is there a cost effective alternative - something that will get me 80% of what I need for 10% of the price?
By the way, there's a site with handy D.I.Y. tips for low-cost alternatives. Check out
http://www.homelessbob.com