A simple solution, which may be adequate, is to surround your strings by the "F" macro, if you are using version 1.0+ of the IDE. For example:
void setup() {
Serial.begin(115200);
Serial.println (F("hello world"));
}
void loop() { }
The use of F there stops the runtime system from copying "hello world" from the Flash memory to RAM, thus saving the bytes that takes up. If you have quite a few strings that can save a lot of memory.