As with so many things in life when designing and creating a costume priorities need to be set. From my point of view the top priority to consider is always "colour and form". That is to say, what are the minimum colours and shapes you need to create a recognizable character?
Example: Spongebob Squarepants. Now, you could go all out and build a huge box and craft or paint the features of Spongebob on it, or you could minimalise and ask yourself, what can I get away with? In my case I chose: yellow face/body paint, brown face paint for freckles, white short sleeve shirt (second hand), brown shorts (second hand), white tennis socks (bought at outlet), belt and black sport shoes (already owned). And of course a spatula.
Now this isn't going to be an amazingly accurate costume, it's all about building the character that is recognizable. When we arrived that year there were many squeals of "Oh my god! Spongebob!!" and we won a prize. So it's not always about being super accurate. If you can bring the character to life people will appreciate it.
Second on the list of priorities is "What do you own?". It's nice to have the luxury of buying lots of fancy things to make a costume but, let's face it, most of us are doing this on a budget. So first stop before I start to consider any purchases is always my own closet. There are always old clothes, bed clothes, fabric scraps and various other materials available and chances are that at least some of it will fit what you want to do. When we went to a con as Green Arrow and Martian Manhunter I used green and black fabric and black shoes that I already had and that was most of my costume sorted.
Some times you don't have all the things you need or the fabrics in your closets aren't the right colours. It is worth noting that in many cases I don't really pay attention to the type of fabric unless it's absolutely crucial, say if I needed fur or shiny fabric. When you need to buy something the third priority comes into play, which is "cheapness". Now I don't neccessarily want my costume to look "cheap" but you can very often find all kinds of luxurious fabrics and clothing you can repurpose in second hand stores. I've made a tavern wenches costume out of some blue drapes and lace curtains and the main part of my sons Invader Zim costume was a horrendous eighties coat but it was the perfect colour.
A word of warning. When buying second hand clothes make sure you wash them and even then be ready to suffer. When I was done with the horrendous coat and it had become a costume I was very happy but the dust and grime that I dealt with when taking it apart required me to wear a mask. So even after I was done washing it and taking it apart I washed it again to get all the crud off. It was easy to dismiss all this as extra work but on the upside because it was a ready made garment I had all the pieces (sleeves, trunk, etc.) already there. It was simply a matter of tailoring it to my needs. Very often the things you find at the second hand store is exactly what you need (short sleeved business shirt or brown shorts) or can be modified with minimum effort (large purple sweater cut up and turned into a cape).
So, to recap:
1. Decide how much you need to make a believable character.
2. Figure out how much of your own materials you can use.
3. Try to get everything left over from second hand stores.
If you capture the essence of the character people will be impressed no matter what. When looking over your materials you have you can even go as far as to let what you already own dictate what you make. Currently we are making costumes from a computer game called Totally Accurate Battle Simulator and the characters require varying amounts of blue and red fabrics. Because I only had a little blue I narrowed my possible choices from ten to three which is easier to carry on with. And many times what is missing can be bought for cheap in second hand stores. Not to mention, if you save yourself lots of money using your own materials and getting the rest second hand you'll feel much better splurging on that spatula :p