Posted: 21/08/2012 at 21:28
Like any domestic project it's all in the preparation. If you want a newly decorated room to look good the first thing you do is clear all the crud you don't need or want and put all the stuff you do want in a safe place (or cover it) and then tackle the cleaning and preparation of surfaces for painting, papering; flooring etc.
Sorting out a garden is the same. Clear the rubbish, tidy up what's left and see what you want to save or recycle. Small people are generally safer on a soft surface such as grass so I'd agree with the sugegstion of making a lawn at the bottom level unless those slabs are laid on thick concrete or drianage is poor and a lawn would just become a muddy bog.
Then decide what features you want and also how much time a week you have to devote to garden maintenance ( horticultural equivalent of dusting and vaccing) and then choose to add features accordingly - flower beds, herbs, veggies, shrubs, a seating area, a dining area and so on. I'd do something about that timber wall first though as it doesn't look strong enough to last and a collapse would be disastrous for anything you do in the future, on either level.
As for budget, you can do it very cheaply growing a lawn from seed in either September or next April/May. You can also grow flowers from seed next spring and ask friends, family and neighbours for cuttings and divisions of plants you like. Whatever you plant though, soil preparation is key to success so remove rubble and rubbish and add some home made compost which you can get for free by making a heap now and recycling raw fruit and veg peelings and scraps from your kitchen along with paper, cardboard and so on.
Doing things in small bites is good advice. Select one goal or project at at a time and see it through so you can feel proud of yourself and encouraged by the progress rather than looking at it all as one mammoth and overwhelming task.
Come back when you have questions too as there's plenty of people here who can advise and suppost.