There are so many sources of inexpensive and free knitting patterns these days, that it makes the olden days of searching out a local yarn store and buying the instructions on how to knit your next project seem like the stone ages. The internet has spawned numerous sources of excellent knitting patterns and instructions as have other media outlets since knitting became "hot" again in the 90's.
My ultimate favorite source of free and minimally-priced knitting patterns is http://www.ravelry.com/. I use that website to allow users to download my free patterns, be re-directed to this blog to download my freebies and I also sell several of my designs there. If you're not familiar with this website, it has evolved in the last few years from a basic social network for knitters and crocheters to the epicenter of knitting on the internet. A Ravelry.com generic pattern search using the keyword "knit" currently indicates over 45,000 free knitting patterns available to download, not counting the other 72,000 patterns available to download either on Ravelry or another website for a nominal charge.
The search engine is great on Ravelry as well, narrowing down results with keywords or by pattern attributes, designer names, ratings, and more. The patterns you like best can be "queued" for future reference. I currently have 699 patterns in my personal queue that I have either knit already and am storing, or plan on knitting in the future. Checking the new patterns feed is one of my daily activities as many freebie patterns from other sites, books, blogs and magazines are consolidated there. I also routinely look up patterns on Ravelry I am considering knitting to read other's comments and see photos of their finished projects. I have abandoned knitting project ideas after checking that information and discovering that no one else has been able to knit effectively or there are pattern flaws I can't overcome.
There are many individual websites that offer lovely knitting patterns free for the taking. My favorites are: http://www.berroco.com/, http://www.straw.com/, http://www.elann.com/, http://www.knitpicks.com/, http://www.lionbrand.com/ and http://www.knitty.com/. Each serves a purpose depending on what type of item I am looking to knit. Berroco is trendy designs, particularly good for cardigans featuring Berroco yarns (which I like) andgenerally interesting designs. Straw is all designs made from Crystal Palace yarn, serviceable if simplistic and a little clunky. Elann has a good selection of freebie patterns, many provided from yarn companies in mid-range style with an abundance of shawls and sweaters. Knitpicks is getting better as time goes on and offers a large selection of everything from accessories to home decor items, with lots of color-work and felted projects. They also act as a clearing house for a wide range of minimally-priced designs by independent designers.
Knitty comes out four times a year with new free designs from a wide range of amateur to professional designers. Knitty's designs are generally fresh and hip, and originally offered some truly off-the-wall knitted item patterns. The last few years the site seems to be a sock, fingerless-glove and shawl emporium, if that's what you're into. It remains a go-to pattern source, particularly the pattern library.
Lionbrand has evolved into a huge free knitting pattern source in the last few years. There isn't a category they don't cover, with many basic scarves, hats, home decor and baby items not found elsewhere. I've knit many of their typically novice-geared patterns and find some of the garments a bit ill-fitting. Knowing that, many of them can be adjusted to be usable using the comments and advice from other knitters' experiences.
I've utilized http://www.knittingpatterncentral.com/ over the years, particularly pre-Ravelry, and it still has many listings in all knitting categories, drawing from many of the websites listed above and others, including blogs. The downside of that website is having to actually click the links and go to the sites to see what the pattern is about (with none of the advice and photos of other users' projects).
Besides the internet, there are other cheapo knitting pattern sources. After buying many expensive knitting books over the years and finding I only used one or two of the patterns, I now fully utilize my local public library and save a bundle. When I find a new knitting book that I want to test drive, I put it in my online library queue and get in line to borrow it for a minimum of 3 weeks (sometimes longer if it isn't in high demand). If I find I absolutely can't live without owning the book myself, I wait until http://www.knitpicks.com/ has one of their 40% off online book sales (several times each year), buy it used on http://www.amazon.com/ or use a 40-50% off coupon at my local Joann's or Michael's Crafts to snag my copy. I have also found many cheapo knitting books (sometimes vintage) at my library's book sales. My last score was a set of early 70's "Creative Hands" volumes featuring needlework crafts (macrame, anyone?) and many awesome knitting stitches and patterns.
And last, but not least, is the improvisation method of cheapo knitting patterns. I often design my own patterns from scratch. Once you have knit various objects and understand the basic mathematical calculations and gauge, the possibilities are endless for cheapo knitting designs when you're creating them yourself. There are a variety of sweater component design books out there to assist, like The Knitter's Handy Book of Sweater Patterns by Ann Budd and countless knit stitch encyclopedias perfect for winging it.
Be sure to check back for Part 3 of the Penny Pincher Guide on "Frugal Yarn and Knitting Supply Sources".