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If you're willing to stay in simple hostels/inns, I would budget $30-40 USD/nt for lodging.
Will you be using the train to get around Europe...if so you can find the cost of the rail pass you'll need in advance on the Rail Europe website. For 3 weeks and 4+ countries you're probably looking at $400+ in rail costs...or you could use RyanAir to get from place to place and maybe come out cheaper.
Approx $100+ per week for transit.
If you eat out every meal you're probably looking at roughly $40-50 per day. However, staying in a hostel should afford you some kitchen access and included breakfasts so that should help keep food costs down. So maybe about $500 for food on the conservative side.
With that you're looking at for 3 weeks:
Airfare: $1000
Lodging: $750
Rail Pass: $400
Transit: $300
Food: $500
So before considering incedentals (admission fees, etc...) you're probably looking at something around $3000 on the moderate side of budgeting. You could probably get food and lodging costs lower, but not significantly so because you are planning to visit some of the world's most expensive cities. You can likely get lower airfares on a discount air carrier than you can get a rail pass for, but look out for all the incendental charges you might incur. You could cut out some costs by staying only 2 weeks instead of 3, but then you'll be cramming stuff into the itinerary. Europe is expensive...period.
If you can do 3 weeks traveling around Europe for $3000, you are really great with pinching the pennies.
Last time I was there, nobody would accept travelers checks. You had to go to a bank to cash them. In France, banks were only opened a few hours a week and all banks everywhere charged a huge fee to cash one of them. I think most people travel using their credit card like an ATM card. So I suggest that you find out who offers the best exchange rate and use that card.
As far as monuments and museums are concerned, it really depends. In Paris, nothing is cheap, but in London, lots of museums are free. In both cities, the best is to use public transportation or walk if weather permits.
I think you are underestimating airfare by a few hundred dollars. You don't mention the cost of getting from London to continental Europe, that's at least another $100.
Many museums in London are free, but you'll pay up to$30 to enter many in other parts of Europe.
I don't think you can eat for three weeks on $500 unless you plan on a steady diet of bread and water or dumpster diving. I would plan on $40 a day.
London, Rome, and Paris are among the most expensive cities in the world. If you stay at hostels, than yes, you could do lodging for around $30 - $40 a night (or less). Remember, this is in dormitory-style accommodation, where you'll be sharing a room with anywhere from three to twelve or more other people. But a decent room with a TV and a bathroom is going to run you at least $100-$150. Think of Rome, Paris, or London as Manhattan.
Food will be dear if you eat all of your meals in even basic restaurants, in London, Paris, or Rome at least. Dining out is more of a special thing to Europeans than something they do twice weekly at the Olive Garden or Cheesecake Factory. Expect to pay about twice of what you would for a comparable meal in the U.S. at restaurants. You could get away cheaply, however, by subsisting on street food like crepes and kebabs, or Indian take-away in London, or even better, by self-catering at the excellent local markets (at least in Paris and Rome). Every hostel I've ever stayed at has a kitchen, too.
If you want to see a lot of attractions, consider getting a city pass. They often have unlimited use of the public transportation system included in their price, too. As many here have mentioned, many of the star attractions in London (e.g. British Museum) are free of charge.
Transportation can be very expensive, and I would consider flying between London, Rome, and Paris if you're just going to be visiting those three cities. Airfare is one of the few things that is cheaper in Europe, and great deals can often be found.
One of the greatest travel advices I ever received:
Take half of what you pack. Take double the amount of money you think you are going too need.
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