If you are installing XPS against the block, then forget the R-13 unless part of the wall is walk-out (ie above grade). I suggest 2" XPS. The XPS can be attached to the block with construction adhesive, then tape the joints. Worthy, another frequent poster here, is quite knowledgeable regarding insulation and and ventilation and will hopefully comment.

Make certain the sill plate for your wall is pressure treated.

Don't understand building the floor. What is there at present?

Thanks for the reply,
I was not planning on installing xps, but wanted to get opinions from the experts.
As for the floor, I have concrete slab and wanted thoughts on the most energy efficient and cost effective method on building my floor. (xps,plywood than flooring of my choice. Or 6mil plastic than plywood and flooring).

There is no reason for building the stud wall away from the exterior wall other than superstition based on bad science. Air circulating behind the insulation greatly reduces the insulation value. Any type of fibrous insulation in a finished basement with or without a vapour barrier will likely eventually lead to mold and water problems unless it's "inboard" of foam insulation. The only plastic vapour barrier that may be effective is Membrain, which may not be available in your area.

Nevertheless, fg insulation with a vapour barrier to the warm side is Code minimum in most places and the cheapest way to go. That's what I used before I learned better.

Here is a link that might be useful: Building Science Corp. on Basements

Worthy and Roberts, thanks for the help so far.
The reason I am building the walls away from the block is mainly for ease of layout with overhead pipes.

So the proper way to insulate and protect from mold is:

1. Glue xps to block walls,tape seams,caulk or foam fill any gaps.
2. Build walls, insulate with r-13 faced batts, drywall
3. xps on floor 2 layers of 1/2" ply than finished flooring

Does that sound right?

My questions:
1. Minimum size xps on walls and floors and which adhesive
2. Build floor first or walls
3. I have a drain around the perimeter of my basement floor(I don't remember the proper name, Elkin drain maybe).do I cover this with any of the xps
4. What is the best way to handle the joist bays near rim joist
5. Can I use 1 sheet of 3/4" instead of (2) 1/2"

I am trying do this the right way but not break the budget

Thanks for all your help and expert advice.

Do you have a water or moisture problem in your basement? If yes, you need to correct that before anything else. I doubt that advise offered by posters here can replace on-site evaluation. I am not familiar with your drain system so my knowledge and comments to you may be incorrect. Our house has drain tiles outside around the footings which empty into an internal sump pit. Water is then pumped outdoors above grade.

Without photos or more knowledge of your basement I can only react to your comments. First, I would try to build a soffit to contain existing pipes rather than set the wall away from the block. As Worthy mentions, better insulation. Plus, space is valuable and 6" around the room is alot of lost square footage.

I'd suggest 2" XPS attached using construction adhesive against the block. Tape the seams and set the studs against the XPS. Forget the R-13. As Worthy says, it will eventually wick moisture and be a problem. Personally, I wouldn't want batt insulation in a below-grade application.

Why XPS and plywood on your floor? Is it below grade - ie not a walk-out basement? If yes, your floor will not get that cold because it is below the frost line and will remain in the 50 degree range. We installed vinyl tile on our concrete floor and have area rugs where we sit. The tile makes it comfortable for some to go bare foot. Personally, I wouldn't want plywood on my basement floor in the event of water caused by flooding or a failed water heater. Again, I am offering blind advise.
Hope this is helpful. Develop a plan and post it. A visual will help us to help you.