I've done this a few times. The biggest problem, as others have suggested, is that I tend to accumulate a huge pile of 'projects'. I know now that if a project takes more than an hour or two, I probably won't finish it. Along with this principle, the other thing I do is NEVER buy fabric. Ever. Not even at a thrift store. There are enough clothes-that-don't-fit, clothes-I-don't-like and clothes-my-sister-gives-me that I have no reason in the world to buy fabric.
If it's something simple, refashioning is a great idea.
Ex: I was in Walmart yesterday, telling myself that I needed another stocking cap (because I lost mine) and a pair of mittens. But I don't really need those things, because I can whip them up myself at home for absolutely free. If I really need them, I will make them.
Also refashioning would be great for gifts. This year I'm making several people on my list slipper socks. I tore apart an old suede skirt that someone had given me for free, and it will be great on the slipper socks.