I traveled to Iceland on a low budget. There were the three of us, we rented a car, slept in it and bought food at supermarkets and that way we saved a lot of money. If you want to bath in hot springs, there are numerous wild free springs throughout the whole country. We also saw aurora borealis on our own, not on some expensive tours. Yes, Iceland is expensive if you stay at hotels, eat in restaurants and so on. You can check my posts from Iceland, maybe you'll get some ideas. :) Cheers!