How do yo do a convincing STABBING effect for a low budget movie ?

You could always try using a fake torso an actually stab into it. A few internal blood packs and careful camera angles and it could look pretty real.

I am days away from making my own, and anyone still interested will find out the mechanics of it here first when I'm successful. I haven't decided if it's going to spring back out, because I don't need that effect this time, but since I may use this again for another video, I'll give it some thought. Offhand I'm thinking I will have a longer blade than I saw for the "stage" knives, cause between wearing loose clothing and sucking their stomach's in, IMHO a retractable one with a 3 or 4 inch blade is worthless to buy or make. My blade itself will probably be about double that. I will use a steel or aluminum bar readily available from the local hardware store. I may make one blade with an impressive point, the other cut off flat. The flat one will be swapped to and be held to the stomach after the scene of the other blade is shot by the camera. The handle(hilt?) will be made from 2 pieces of wood. I will find or make a metal glide for the blade that is as near perfect as I can get and screw these inside the wooden halves of the handle.So to make a long story short, the flat blade will simply slide into the handle along these glides, similar to the way a lot of drawers work. Pull one out, look at it, and you'll probably hear your own gears turning too! I figure if I want the "recipient" to pull it out, I can use something more ingenious but not unlike, duct tape to hold to the body under the slit in the clothes, and simply pull the handle away and the blade will appear to be coming out. From there either cut the video shot or make a more complex knife.It can always get more complicated but the needs of the shot and the safety are first, all else is second.

 easy a vest that has a couple of blood packs embedded in the cloth 

Hitchcock style would be to imply that it's being done, and not show anything. You could do a tight closeup where a fake gets stabbed, then cut to the 'damaged' real actor. Use padding to absorb the force of the blow, solid armor of some type behind, the blood bag inside the padding. Preferably with the retractable blade : ) Otherwise with a blade without an edge. Distance-have a reason for the shot to be far enough away that the stabbing is easier to fake. The same for darkness : ) Photoshop : )

Try different camera angles. Have you seen Psycho?

. Use a stage knife with a spring-loaded, retractable blade