You are probably going to want to get a rail pass if you are going to be travelling all throughout Europe, but make sure you compare how much a 1-month pass will be compared to individual tickets ( you can find that on RailEurope.com) Hostels can be realllllly cheap- some we stayed in were 10 bucks a night/person! In my opinion make arrangements for the hostel before you leave, it will be a lot cheaper, and less stressful. Food can be expensive or cheap, depends on if you are going to want to go to a restaraunt or just grab some food. The really expensive stuff is the attractions, but that is worth it. I went for 2 weeks, and probably spent $600 bucks, but, we weren't very thrifty. My sister went for a month and spent $800. Unfortunatly the dollar isn't doing so well right now, so the exchange rate isn't that great. The way to make sure you get the best exchange rate is to use yoru debit card at an ATM, but be careful and cover up your PIN whenever you use it, my friends got their accounts drained.
As far as plane tickets go, check out www.bt-store.com they have great ticket deals!
Hope that helps, and trust me the money is worth it!