There are a lot of very good, very cheap hostels in Varanasi, but the two options Dhruv and Somu gave sound good. I've been a few times, and cheap food has never been a problem, either. Street food is great there, and filling. Try tomato chaat, which is delicious, and find a dhosa stand if you like South Indian food. Look for places that are busy, as it means that it'll be fresh, and stick to vegetarian options if you want to minimise your chance of getting sick. Also stay away from pani puri, which uses the local water, which will make you sick if you're not used to it. My favourite thing to do in Varanasi is just to get a thali - again, look for a lowkey but busy place. My favourites are ones which have open fronts, as usually this will indicate that the food will be cheap, and it was always delicious.