Lubricating your bicycle should be part of a regular maintenance routine, just like changing the oil in your car. Lubricating the bike every month or two will prolong the life of your bike and prevent mishaps on the road. Do lube maintenance more frequently if you ride the bike in extreme off-road conditions.
Lubricate your bicycle in the garage or outdoors. The floor is likely to get a little dirty, so thoroughly cover the floor with newspaper. Don't do this on carpet or other floors that should be protected, unless you've lined the floor with plastic.
Turn the bike upside down. Place it in the middle of the newspaper-covered area.
Familiarize yourself with the parts that touch the chain: front chain wheels, possibly a front derailleur (the part that changes gears in front), rear cogs, possibly a rear derailleur with two more cogs.
Scrape off any mud and dirt from the cogs on the rear derailleur. This works best if you hold the blade of the screwdriver sideways against the outer portions of the cog and gently turn the cranks. Try to avoid allowing the scraped-off dried mud and dirt to land on the chain.
Prepare the rag. Dampen it. Provided that you are working in a well-ventilated area, you might like to add a degreasing cleaner, such as lighter fuel or a citrus degreaser. (See "Tips", however.)
Take the rag in your palm and wrap it around the chain. Hold on tightly. Turn the cranks a couple of times while holding the rag around the chain firmly. This works best if you hold the upper portion of the chain, the one that's closest to the saddle (seat). You will notice that the chain becomes much cleaner.
Lubricate the chain. Mark one link with a magic marker, sticker or a piece of tape, so that you know where you started. Starting with the marked link, apply one drop of chain lube to each link. It's best to apply a little drop to each gap where two links overlap. Don't use too much or it will be wasted because you'll wipe off the excess lube anyway!
Allow the lube to settle. When you've lubed all the links, turn the cranks again for half a minute or so to make sure that the lube settles properly into the inside of the link.
Remove any excess lube on the outside of the chain using the rag.