Throughout my two years in China, I've found, without a doubt, that flashcards are the most effective way for me to learn new words in Chinese.

I'm up to chapter 30 in my text book.  Each chapter has about 30 new words.  So my vocabulary (should) include around 1,000 words and probably about the same number of Chinese characters (which make up the words).

Here is an example of a flashcard I make when studying a new word:


Side one includes the Pinyin (the romanization of Chinese characters) and the English definition of the word.  Pinyin tells you how to pronounce the word.  The marks over the vowels tell you what tone the syllable is.  For more on the four tones of spoken Chinese, see this.


Side two has the Chinese characters of the word. 

I've found the best system for using the flashcards to be this:

1.  Look only at side one.  Study the English meaning of the word and the pinyin for that word. 
2.  After having looked at side one several times, I then cover the pinyin and only look at the English definition.  The idea is for me to be able to say the pinyin, both correct pronunciation and tone, just by looking at the English meaning. 
3.  After I have a pretty good grasp of the English -> pinyin of the word, I then begin working on the Chinese characters of the word.  I try to focus on writing the characters and associating those characters with the corresponding pinyin.   Since I (should) already know the English definition of the word based on the pinyin, I pretty much ignore the English writing on the bottom right hand corner of side one of the flashcard.
4.  When I am feeling more comfortable with the Chinese characters, ie. I can write the characters from memory, I then focus on going from English -> Chinese characters.  This is the most difficult step.  It is also the most important I believe.  If I can write the Chinese characters from the English definition, I consider the word "learned" and will put in a separate pile from my "new words."

So, the basic idea is:

English -> pinyin
Chinese characters -> pinyin (or visa versa)
----------------------------------------------------
English -> Chinese characters

Even after I have "learned" a new word, I must constantly review the flashcard of the word to burn it into my memory.  It took me a long time to realize this.  It happened sometime around chapter 20 - 22 when I realized how much trouble I was having with words from chapters 8 - 10. 

These days, I am always reviewing characters I've previously learned.  I've dug up every flashcard I have and am plowing through them.  I've relearned tons of old words over the past few weeks.  I've decided that this must be something I do on a consistent basis.

So there is how I go about expanding my Chinese vocabulary.  Sometime soon I'll take pictures of where I'm at in my book.  I have to admit, it's pretty nuts.