hi, i am from nz, so have found prices in europe horrific! it has been hard to stick within budget, and i ALWAYS find myself going over it.
some mistakes i made at first though were going to things like art museums. i dont really like art all that much, so why pay a 6€ entry fee? if you like art, it´s worth it, but for me, it was a waste of precious money.
so a tip, think about what you actually want to see in a city. for me it is the architechture. walking around cities and looking at the gorgeous buildings is free, and that is what i love doing.
seeing gorgeous buildings from the inside means you usually have to pay the entry fee. churches are usually free, and absolutely breath taking. im not religous but have seen HEAPS of churches in europe.
paris and london are REALLY expensive. eastern europe is cheaper so you may be able to make your money go a bit further there.
use www.hostelworld.com which is great for comparing hostels and booking them after using it for two or three bookings the €1.50 booking fee is waived from then on. look for hostels with the things you need, not just the price. some of them include breakfast too, which is great. some include sheets, at some you may have to hire them if you dont have your own.
and last but not least WATCH YOUR PENNIES AND THE POUNDS WILL LOOK AFTER THEMSELVES!!!!
have fun & good luck :)