Your largest expense (especially for those of us travelling from North America) is the flight. But, thanks to airlines now offering regular deals to major cities all over the world, and discount travel websites, you can now find incredibly cheap flights as long as you plan ahead. I've found flights to Europe for $450 over the last year — an incredible deal!
Also remember that once you get to Europe you can use cheap airlines to get around to other countries. For example, if I want to go to Portugal, I will look for a flight to London or Paris, as I know that are often less expensive. Then I will book a RyanAir or EasyJet flight separately to save hundreds of dollars. These discount airlines offer one-way flights for as little as $20 sometimes! Always look at the option of booking segments of your flight separately. Sometimes it can work out to be a lot cheaper!
Once you've got your flight sorted out, like at home, you could pay hundreds of dollars for food, fun, and a bed OR you can choose the more budget friendly options.
You probably aren't going to be spending a ton of time actually in your room. You will be out seeing the sights, trying out local food, and exploring. Do you really need a giant room with a view? Or will a more budget-friendly option work?
When it comes to fun, or seeing the sights, remember that a lot of museums and cultural attractions are free or affordable to make them accessible to everyone. And sometimes the best way to see a city is to just walk around it — that doesn't cost a cent!
When it comes to food, costs can add up if you eat out for every meal. But, if you self-cater from grocery stores, eat from street stalls, or check out local bakeries and grab-and-go spots, it doesn't have to cost a lot! If you want to eat out one meal a day, lunch tends to be cheaper, but just as good, than dinner at restaurants.
Let me put it this way — if you are willing to spend $1,700-$2,500 for seven nights at an all-inclusive, why not spend $700 on flights to Portugal, $40 a night at a B&B, and the rest on having the adventure of a lifetime?