"So don't ask me no questions and I won't tell you no lies" --Lynyrd Skynyrd

Very few people recommend lying, but you might have your reasons. Whether you're an investigative journalist going undercover or you're being asked for your opinion on a horrendous bridesmaid dress that's already been paid for, the key to convincing someone you're telling the truth is to strike a good balance between fact and fiction. Ask yourself: "Who is more blameworthy, the liar or the believer in lies?"

[edit] Steps

Decide if what you are lying about is worth the effort and the potential consequences. It is a personal decision. You need to be realistic with yourself. It is easy to become a compulsive liar and ruin your life. Under what circumstances are you willing to risk damaging relationships, reputation, and future opportunities and do the benefits of telling the lie outweigh the risks?
If you know you're going to have to lie, think of some specific true thing (place, person, event, story) that your lie will fit into and use those details if you are questioned. This gives you a bank of specific details to draw on so you don't have to keep making things up as you go along. The more things you have to lie about to support your original lie, the more likely you are to be tripped up. Lying is a bit like chess--you must always think ahead. Anticipate what the person you're lying to is going to ask, and be prepared with a response.
Force yourself to believe your lie is truth. This will make you naturally act as if you were telling the truth. The trick is convincing your sub-conscious mind that you're telling the truth. An example of this may be, "Did I wreck the car? Well, I drove it into a wall. So, the wall wrecked the car. I just moved it!" In the immortal words of George Costanza, "It's not a lie if you believe it's true." This works well when your situation is quite ersatz.
Use big words to confuse the person. When you use large words they are vexed on how to decipher exactly what you said. The victim will fall prey to your technique and will be unable to understand the situation.
Slide the lie into a casual conversation. It's better to lie to the person in advance than have him question you later on the same topic. That way, the victim's mind has hours, possibly days to fill in the blanks, and if he/she does come back to question the story, you'll have a much easier time as your victim starts in on you. If the victim discovers your misdeed before you explain yourself, they'll have time to deduce what has happened with a certain degree of certainty before they ever even question you.
- Example: Joe, Bob's roommate, walks in the front door, Bob, looking up from the television screen is told by Joe that the dog ate his sandwich when Joe actually did. Bob walks into the kitchen, discovers the sandwich is gone and shrugs. However, if Joe never said anything, Bob would come out of the kitchen angry and assumed Joe ate his tender, delicious, mid-morning snack, which in turn makes him angry and less receptive to anything Joe has to say in his defense.
Look the person you are lying to in the eye. Don't look around. Don't touch your head with your hand, or hold your palms up. Keep your palms at your side, and leave them there. There are many subliminal messages people send when lying. Learn what they are and how to avoid them. Most professional lie detectors (e.g. law enforcement professionals) know what they are, and you should, too. The cops will make small talk with you to establish what your "normal" behaviors are. When they get down to the serious subject matter, they look for deviances in behavior. Polygraph machines work the same way.
Practice lying in front a mirror or video camera. Observe your facial expressions. Try making your eyes go big and letting your mouth hang open a little for an innocent/shocked look. Also, practice looking like you're holding back tears. When you smile, show your teeth a little and crinkle up your eyes and cheeks. This is a 'sincere' smile, an ear-to-ear one.
Make a truthful admission. If you sense that someone else suspects you of lying, admit to something small or untrue. They will take the bait and think that that is all you were lying about.
Follow through. Never forget about your lie, and treat it like it actually happened. Mention it in conversations the way you would if it was true. Silence about a certain subject can arouse suspicion, especially in retrospect.
First, you will find that lying is much easier if you have a neutral reputation towards whoever you're lying to. This means you cannot have done anything bad to them that they can recently recall. This will prevent immediate suspicion about whatever you're saying and they will listen to your story and believe in you a bit more.
Think about what questions the victim of your lie will ask when you next see them. For example: You tell your parents you're going to the movies with a friend. But you're really going to a concert with your girlfriend. Logically they're going to ask about what was in the movie you watched. Before you go, Google a summary what was in the movie; along with the climax and you can say it was your favorite part. Make sure to not sound like it was rehearsed.
Make a lie that cannot be linked with anything anybody can relate to or look up. An example would be that you wanted to get out of school and you're "sick." Obviously you're going to have to go to the nurses office and explain what's wrong. Your school nurse usually will only be able to check your head with a thermometer. So saying your stomach hurts from eating beans at lunch can't be checked or related to because the nurse didn't eat lunch with you and she can't open your stomach and look inside. The rest of the lie is in the bag.

[edit] Tips

Practice small lies before moving onto bigger things that can cause potential damage to you or people you care about. Practice makes perfect. However, try not to ruin your reputation. Being known for honesty, or at least not known for dishonesty, can make all the difference.
Ask yourself if you would believe your own lie.
Always have a back up for every part of your lie. If whoever you're lying to tries to dissect your lie by asking specific questions about what it's about, you better have a good explanation.
There's power in numbers! Having more than one person telling the same story to someone makes it more believable and intimidates them.
The execution of a lie must be flawless. When speaking you must have an honest tone, the appropriate expression to go along with what you're saying, and act like your casual self.
Telling a lie is a lot like story telling; take the original concept and expand on it as necessary. Always keep the lie believable and simple. Add detail but not too much. Too many details are an obvious indicator of a liar.
People are likely to believe your lies if you are telling them what they want to hear. Politicians and cheating spouses tell these kinds of lies all the time.
The best practice is watching how you tell the truth, and imitating that. If you tap your feet or fidget during your lies, make sure to do it a little before and after your lie to make it seem less suspicious.
Learn to relax your muscles on command. Actors do this to overcome stage fright.
Don't search your opponent's face for clues as to whether or not they believe you. This is usually very obvious to them.
Don't be too defensive if you are accused of lying.
If lying is really just too difficult, try what some consider the "Elven Way of Lying." In other words, omit certain truths to imply something without directly saying a falsity. By using this method, the person you are lying to is technically "jumping to conclusions," so if you ever have to go back on what you say you can blame it on misinterpretation by the other person.
If you are going to lie to a teacher, a good thing to do is to mention the lie (as if it were the truth) to someone before or afterward. For example: If you did not do an English paper be sure to talk to a person in the class about it before the class and compare answers. This way when your teacher asks "Where is your paper?" you can say "I looked for it, but I can't find it." Chances are if the person you talked to before is a friend they'll back you up.
It may be helpful to become known as a sarcastic person. This way, if you ever get caught in a small lie, you can tell people you were being sarcastic and thought they knew that. Also, it is easier to lie if you do not think about yourself as a liar. If you are sarcastic, often you think of your lies as objects of witty sarcasm that someone believes.
Learn to cry on demand. Real tears are very convincing.
Euphemisms are sometimes excellent tools for lying. For example, if you intended to spend some time (i.e. make out) with a significant other, you could say that you want to "attend a social congregation with a close friend". If discovered and asked about this later, you can say that the euphemism was coined as a means to diminish your embarrassment, and that they (whoever you may be lying to) misunderstood your intentions.
If your lie involves numbers, exaggerate so that the numbers remain obscure to the victim while your point is conveyed. (For instance, if asked about how much time was spent on a term paper you composed just moments before the deadline, you can reply "I spent like, 50 hours!". This implies that you have spent an innumerable amount of time and effort. Little does your teacher/employer know, 15 minutes to you seems like an eternity. When asked about this later, you can reply "It seemed like a long time to me, and I didn't keep time".) Modify as necessary.
Notice what you do naturally when you lie. For example, if you always play with your hair when you lie, STOP IT! Notice the way you talk and the words you use while telling the truth. Use those instead.
You may also want to build up a reputation as a horrible liar. Example: Lucy sees a spider on her desk. She screams, and everyone around her laughs. Later, Lucy claims that "she wasn't really scared". This lie is so obvious that nobody believes her. If you create a reputation as a bad liar, no one will expect you to be able to lie effectively, also don't change the subject immediately like asking about the weather, it's an obvious giveaway that you are lying.
These two techniques may be helpful as portrayed in this YouTube video: How to Lie and Get Away with It - 2 Easy Techniques 1:16

[edit] Warnings

Never lie under these circumstances:
- to officials (government, police, serious job interviews) unless you fully understand and are prepared to accept the results. In the majority of nations, lying to a police officer or in a court of law is a serious, illegal offense.
- to your doctor or lawyer. Ask them if you are speaking in the course of a professional relationship (doctor-patient or attorney-client). If they say yes, things you tell them are privileged, and they can not reveal them even to a court or to the police. This does not hold true if your doctor/psychologist feels you may commit a serious offense, such as murder. Also, some other circumstances may change your relationship with your lawyer/doctor.
When telling a lie to a loved person take in consideration that sometime in the future you may feel guilty. This feeling may be permanent, and if you ever confess the truth, you may find that it would have been better to never lie in the first place.
Lies are sometimes necessary in life but they should be used sparingly. You better have a very good memory if you lie often. You are bound to be found out eventually.
Being branded a liar is almost impossible to undo.