moved to the Game forum, as it was more related to advice than actual balance.
Yes, it is hard. Be careful, try to use your skills and fight monsters one by one, like it was already said. About wolves... well, I never tried to take a knife and face a rabid wolf without any protection on me, but doesn't sound exactly trivial, does it?
wolves are level 2, while you are underequipped, stick to goblins.
However, I must say you're probably playing version 0.3.662 or earlier. Wolves spawned very close to the town, that has been fixed. Sadly, you won't notice until the area respawns, or you start a different game.
If you're losing a fight, you can run back to the guard, just saying. But I don't know if you get XP or loot if he kills something for you. I think you get nothing. Still, beats dying.
Indeed you get nothing if a guard lands the killing blow on an enemy, but if you manage to hit the killing blow, you'll get the regular loot and XP for it.