Interpreting the Bible "literally"

What is the proper way to interpret the Bible? People often refer to interpreting it "literally" as the only way to properly believe it. But many things can be true but not literal (e.g. simile, analogy, hyperbole). The proper way to interpret something is not literal, but rather, the way the author intended it. To know that, you must look at context. You must know the intended audience. It also helps to know what you can about the author.

Reading Between the Fossil Lines (scroll down on the page, there are many articles)
By Gleason L. Archer

But a true and proper belief in the inerrancy of Scripture involves neither a literal nor a figurative rule of interpretation. What it does require is a belief in whatever the biblical author (human and divine) actually meant by the words he used.

An absolute literalism would, for example, commit us to the proposition that in Matthew 19:24 (and parallel passages) Christ actually meant to teach that a camel could go through the eye of a needle. But it is abundantly clear that Christ was simply using the familiar rhetorical figure of hyperbole in order to emphasize how difficult it is spiritually for a rich man (because of his pride in his material wealth) to come to repentance and saving faith in God. To construe that passage literally would amount to blatant heresy, or at least a perversity that has nothing to do with orthodoxy. Or again, when Jesus said to the multitude that challenged Him to work some miracle, “Destroy this temple, and in three days I will raise it up” (John 2:19), they grievously erred when they interpreted His remarks literally. John 2:21 goes on to explain that Jesus did not mean this prediction literally but spiritually: “But He was speaking about the temple of His body. Therefore when He was raised from the dead, His disciples remembered that He said this, and they believed the Scripture.” In this case, then, literal interpretation was dead wrong because that was not what Jesus meant by the language He used; He was actually referring to the far greater miracle of His bodily resurrection.

An accurate interpretation of scripture means reading as the author intended, getting into the mind of the author as much as possible. Since God is the author, we must approach it with great humility and a teachable attitude, seeking to truly understand what He is saying, not bringing to it our own agenda.