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It's a good idea to book a hostel close to Centraal Station as not only are the trains nearby, you can easily jump on a tram here or a bus. This is the best area to stay in if you want convenient links to Amsterdam's sights and attractions.
Check your hostel for leaflets and discount cards; they could save you a lot of money. Food and drink in Amsterdam are expensive, but if you use the Iamsterdam card, you'll spend a very small amount on visiting attractions.
Be aware that most buildings in Amsterdam have very narrow, steep and often winding staircases, so you may want to think carefully about your luggage or if possible request a groundfloor room. Also, taking a sleeping bag along to use in the hostel used to be adviseable but it is no more the case: hostels now include the linen in their price and forbid the use of sleeping bags for hygiene reasons (bedbugs carriers).
Canal boat tours are a great way to see the city, relax and kill any time should you need to. Tours are particularly enjoyable at night, when it's quieter. At night the tours have a more personal rather than touristy feel compared to a daytime tour. There are many different types of canal tours and companies that run them and there is a free tour for those who invest in the Iamsterdam card. There are no really bad or good ones. The highest concentration of companies is near Centraal Station; Plas is about 30% cheaper than the others there simply because it's 100 m further walking (down the Damrak) but delivers same quality as the expensive ones. Blue Boat Company leaves from across from Leidseplein by the Hard Rock Cafe and Holland Casino; instead of repeating each commentary in 4 or so recorded languages each passenger gets headphones to listen to commentary in own language. Less irritating and allows longer commentary per sight.
Make sure you take full advantage of the Iamsterdam card (Iamsterdam Website) available from Tourist Information shops (found in the airport and train station among other places). The card gives free entry to a lot of attractions as well as discounts to others and free public transport on most trams, buses and metro trains for a maximum of 3 days. As long as you plan to make the most of your time in Amsterdam and visit a lot of places, you will make your money back in no time.
In general the tram system is great, but announcements on the tram are generally in Dutch, so if there is an unexpected route diversion you'll be none the wiser unless you speak the lingo. Try to make sure you know which stop you need to get on and off at for each journey as you could fairly easily get yourself lost.
The Heineken Experience, Rijksmuseum, Van Gogh Museum and House of Bols are all in the same area, so it's a good idea to make a stop to all of them in the same day if some (or all) of these attractions appeal to you.
The Red Light District is nothing to be wary about. During the day, the area is very subdued and quiet and even at night, there seems to be a jovial atmosphere, rather than a dirty, seedy one. Obviously, if the notion of the Red Light District offends you then it is very easy to avoid and there are plenty of other things to see in the city, but it is recommended that you take a walk or a tour around the area at least once as its a unique experience.