You do not have to buy water. Bring your reusable water bottle with you and refill it at QS soda machines (there's a spot for water) or at your resort/motel/rental. There are even water refill stations inside the queues on some of the rides. I did this last trip and never had to search around for water.
I advise staying onsite in a value. That way if you want to split up, there's no transportation difficulty, since you'll be using WDW transportation. This assumes you're not driving to WDW. If you are, then you have to factor in the added cost of parking your car at your resort. The convenience of being onsite, though, is huge, especially for a group where everyone will probably not want to do everything at the same time.
Staying offsite would be less expensive until you start factoring in things like renting a car (if you didn't bring yours with you), since you can use Disney Magical Express from the airport if you fly in. And parking at the parks, which is $25/day.
Get breakfast items to keep in the room. No need to spend $ on breakfast. Have a late lunch--it can be both lunch and dinner, saving you on a third meal, or you can have a small snack at dinnertime.
Don't drink alcohol--I'm saying this because of the expense. It's pretty steep at WDW.
Share meals if you can or want to.
Don't buy park hoppers. That's very hard for me to advise since I'm a major park hopper, but it will save you money.
Buy your tickets from a discount broker--several are referenced on this site. I've used both
Undercover Tourist and Parksavers in the past. This isn't a gigantic savings but it is somewhat of a savings.
Book your room at a room-only rate during a discount period. Discounts are listed on mousesavers.com if you want to take a quick look at what's out there. You can also just go to the WDW site and see the current offers there.
Go at the least-expensive time possible for you. Avoid the week between Xmas and New Year's or Easter weekend, for two big examples.
If you have a car and everyone in your group is willing to do everything together (and you're willing to live with the possibility that even if they say they are, they won't be), the absolute cheapest thing to do is to find an off-site motel or vacation rental that's super inexpensive and eat off-site as much as possible, Remember, if you do consider this, to factor in the cost of parking at the parks unless one of you has an AP.
If you're planning a vacation for a group of more than you and one other person, be aware that some of these people may bomb out on you and decide not to go. Just sayin'. Keep that in mind when you're adding up what everything costs.
Do not buy the
Disney Dining Plan--a complete waste of money for someone traveling on a budget.
Whatever you do, make sure to ride Avatar Flight of Passage in Disney Animal Kingdom , Rise of the Resistance in Disney Hollywood Studios, and take in at least one of the classics (Peter Pan, Haunted Mansion, Pirates) at MK.
There's no way to make this a cheap vacation, since the price of park tickets, even discounted, is anything but cheap. But you can keep a lid on the expenses and still have a great time.
(Edited to fix typos.)