1. Create useful content:
No site, however well designed can be successful unless it has loads of useful, targeted content. Before you start your link building campaign it is important to have a great site which people will want to link to. Even if you are selling something or some service, you can create a useful site by writing howto and reviews.

2. Write articles and submit to article directories.
Initially your site will have no incoming links. So no one can find your site. And as your site has little link popularity, other sites will not even exchange links with you. Your best bet in these times is to write articles and submit it to article directories. At the end of articles you get to add a resource box where you can add links to your site. These article directories have many partners and so a well written article can appear at a number of sites. You can create a number of one way targeted links this way.

3. Submit to the top directories:
Getting listed in the top directories like DMOZ, Zeal can give you a huge popularity boost. SE give a lot of importance to sites which are listed in these directories. Some of the best free directories are
1. DMOZ
2. ZEAL
3. JoeAnt
4. Gimpsy
Getting listed in these directories can take a long time. So your best idea is to submit and forget. Some directories like Yahoo and Botw take paid submissions, but your budget may not permit that.

4. Submit to related second tier directories:
Every niche has good directories which list the best sites in their niche. Find out the directories in your niche and submit to them. Some of these directories ask for a link back. Since they are related sites linking to them will not harm your site.

5. Have patience:
Link building is a continuous process taking time and effort. As long as you take time to follow these steps to create links, your link popularity will increase. And if you have a useful site, soon you will start getting links without asking from people who found your site useful.