As Rio de Janeiro  revs up to play host to the 2014 World Cup and the 2016 Olympic Games, the city has gone gangbusters. New constructions, renovations, and revitalizations are taking place not to mention the much-talked-about bringing of peace to many of the city’s favelas where special police pacification units have dislodged drug dealers and brought about a degree of security to the city’s lofty morros that has transformed them into hot spots (in the fashion, not criminal, sense).
Rio has always been a Cidade Maravilhosa, but these days, Cariocas’ newfound sense of pride and potential in their city is palpable. Rio is once again an “it” city – unfortunately, with prices to match. It’s official; there’s no longer an “off-season” in Rio. Count on beach hotels being both full and overpriced and upscale restaurants taking a large bite out of your food budget. And yet, for those open to alternativas, you can still enjoy Rio to the hilt without going into debt.
Here’s how to meet the Budget Challenge and enjoy 8 Days in Rio de Janeiro for under US$1,200 (excluding air fare):
Part I  of this post offers an itinerary that covers the first 4 days within the city of Rio itself, while Part II, below, covers the remaining 4 days, spent in Paraty , an alluring colonial town surrounded by beaches and mountains, located in the southern extreme of Rio de Janeiro state.
Head to the Rodoviário Novo and grab a Viação Costa Verde bus (R$50) for Paraty, one of the most picturesque colonial towns you’ll ever lay eyes upon. The 4.5-hour ride takes you along some breathtaking patches of coastline whose winning combination of diaphanous seas and mountains cloaked in Mata Atlântica (native Atlantic forest) explain its designation as the Costa Verde  (Green Coast).
Arriving in Paraty, check into your hotel. One of the most attractive and affordable hotels in the centro histórico is the Solar dos Gerânios Costa  (R$140 a night), a homey place occupying a rambling old house on the Praça da Matriz. For cheap eats, however, walk just outside the old town to Sabor da Terra , a low-wattage place with a low-priced (R$15-20) and tasty per-kilo buffet, which includes grilled fish and churrasco (barbecue).
Spend the afternoon poking around the charming cobblestoned streets of the centro histórico with its quartet of baroque churches and pretty boutiques. For splendid views of the mountains and sea, walk up to the Forte Defensor Perpétuo . Crowning the Morro de Vila Velha, this fortress was built in 1703 to prevent Paraty’s gold from being hijacked by pirates. Today, it houses a small museum as well as a store selling handicrafts.
On your way back, stop for a pick-me up at one of the rustic bars at Praia de Pontal before heading back to your hotel to relax. For dinner and/or drinks, Margarida Café  is a traditional favorite that serves innovative cuisine and pizza (R$20-40) along with nightly performances of live jazz and MPB (R$8 cover).
Take a municipal bus or van 8km from Paraty to Penha for a morning hike along the Caminho do Ouro , During colonial times, this was the route along which gold was transported over the mountains from Minas Gerais to Paraty before being shipped to Portugal. Ascending into the Serra do Mar, you’re treated to breathtaking views of Paraty and the ocean. The 3-hour guided hike costs R$20 (purchase tickets in advance at Paraty Tours in town).
Afterward, cool off in the Cachoeira do Escorrega, a waterfall that features a natural waterslide. Grab a drink or snack at the appropriately jungly Bar do Tarzan before heading back to town for a late lunch – or early dinner – at Casa do Fogo , a restaurant where the majority of main dishes and desserts, not to mention drinks, take advantage of the local cachaça supply to arrive the table on fire (fogo). Expect to spend around R$40-60.
It’s worth forking out R$40 (and buying tickets in advance) to see the Contadores de Estórias  at the Teatro de Bonecos. (Wed., Sat., and, in summer, Fri.). This world-renowned troupe of actors are talented manipulators of a disarmingly lifelike cast of doll-like puppets (bonecos) who mutely act out poignant and hilarious scenes.
Take a Colitur bus (R$3) from the bus station to the town of Trindade, 45 minutes away, where you’ll find some of the most stunning beaches along the Costa Verde. The gloriously wild beaches of Cepilho and Brava are ideal for surfing, while Praia do Meio and Praia Cachadaço (a 20-minute hike through the jungle) are prized for their calm waters and natural pools. There are plenty of barracas and bars where you can rustle up a cheap fish or seafood lunch for R$20-40.
Since it’s your last night in Paraty (and Brazil), you might want to splurge a little and treat yourself to local caiçara fare with a touch of refinement at the elegant Banana da Terra . True to its name, various types of bananas appear on the menu – in guises both sweet and savory. But expect to spend at least R$100. For something cheaper (R$20-40), but charming, head to Le Castellet , a cozy French crêperie that also serves specialties such as seafood bouillabaisse. Indulge in a nightcap at Café Pingado  where the coffee is accessorized with chantilly, ginger jelly, and a shot of local cachaça. For a sweet accompaniment, try the manuê de bacia, a local cake made with sugar cane molasses.
Grab a late morning bus (R$50) back to Rio’s Rodoviário Novo; from here you can either catch the Real bus (R$9) or take a taxi to the airport (R$30-40) with time to spare for your night flight back to the Northern Hemisphere.