I'm not going to be as harsh as some PP, because I know that if you cut out EVERYTHING, some people get miserable and just give up completely.
YOU NEED A BUDGET. You can't control your spending. I don't care how much money you make, if you are worried about spending too much, and 900 dollars/month is "disappearing", you can't control it right now. Make a budget, and stick to it. Is it hard? Yes. Does it suck sometimes? Uh-huh. That's life...
You need a grocery budget. DON'T CHEAT.
If you don't plan well and blow all your grocery money the first three weeks on processed foods, soda, twinkies, and expensive frozen pizzas, well, yeah, it's a slim last week. But it does two things: One, keeps you on budget, and Two, teaches you how to plan a little better. Homemade pizza is far superior to boxed pizza, everyone should probably drink more water than they do (I buy X amount of soda/week. When it's gone, it's gone, whether that's day 6 or day 2), and look for deals. You can still eat steak; just buy it when it's on sale, and have something else until then. Most kids love to cook. Brownies from scratch are FUN and taste better than anything that comes out of a box or a store bakery.
Which ties into:
My DH and I love to eat out, but we don't do it Fri/Sat/Sunday. Cut back on that. We *usually* do it once a week, but that means either eating out OR ordering in. Occassionally, it might be more than once a week, but, I budget eating out, so, if we go someplace cheap-o for lunch, yeah, we might have enough extra to order in wings that Saturday or something...but, once it's gone, it's gone. If we decide to go someplace ritzy, well, there's our dining out for the month, but, it's not horrible.
You also need an entertainment budget. If you want to go to the movies, go, but don't buy snacks there. Or buy some snacks at the grocery store, and then rent a movie. Or go to the dollar theater/drive-in...they're usually a LOT cheaper. I'm thinking two adults and two children has to be at least 25 dollars for tickets alone (and I'm lowballing it), and then, if you each get a soda/candy, another 20 bucks. BUDGET. When the Entertainment money is gone, it's GONE. End of story. And that may mean saying to DH/DC/yourself, "I'm sorry, but we don't have money in the budget for that right now...we can do that in two weeks, but right now, we'll have to do something else like (make a pizza, invite some friends over, go to the Y's pool, etc.)"
Get rid of Tivo, Satellite, and whatever fancy Cable you have. If you can get reception with bunny ears, go for that. If not, get the bare minimum cable. Here it's 16 dollars a month, but I know the last place I had cable it was 7 dollars a month...you'll still get the major channels (NBC, PBS, CBS, etc). Keep your blockbuster online (or switch to online if you only have the regular membership) - much wider selection and you can exchange in store. That ought to cut about 100/month out between satellite, expanded cable, and tivo (maybe more...I don't know what those all cost), and really shouldn't impact your "viewing" habits that much.
I'd get rid of the gym memberships and karate, possibly, in exchange for the Y. The Ys where you are does Tae Kwon Do lessons, has swimming pools, etc. They do "adventure" guide events, which are father/children events...might be fun for your husband to do with the kids (I'm not sure how old they are, but, if they're taking Karate/dance lessons, probably old enough). From my experience with the Ys around here, they also sometimes do weekly "floating movie night" (in the pools), holiday events, etc.
I would try to rent out my timeshare's week for this year, or trade for one closer to home so the travel costs wouldn't be so large.
Dude, you need health insurance. Holy crap. Most people who go bankrupt go bankrupt because of a health emergency or loss of job (and sometimes the two are connected).
And you need to pay off your credit cards. Really. You should be throwing any extra money at those danged cards. And as soon as you pay THOSE off, throw the extra money into savings. With a self-employed husband, you need a backup in case. Once you have a substantial amount in there (6 months of expenses), then, yeah, you can look at loosening the proverbial belt a bit, but, until then...uh-uh.
ETA: I would also sit the kids down and explain to them (in age appropriate terms) what's going on. Maybe even let them make some choices...ie "We can go to the movies this weekend OR we can go out for lunch. It's one or the other, so which do you want to do?" or "We can go bowling OR you can invite a friend over and we can make brownies and rent a movie"...then they have some choice, but also know that, hey, right now, both are NOT an option....