There are several approaches :

Using ActiveSupport::Concern (Preferred)

Read the ActiveSupport::Concern documentation for more details.

Create a file called active_record_extension.rb in the lib directory.

require 'active_support/concern'

module ActiveRecordExtension

  extend ActiveSupport::Concern

  # add your instance methods here
  def foo
     "foo"
  end

  # add your static(class) methods here
  class_methods do
    #E.g: Order.top_ten        
    def top_ten
      limit(10)
    end
  end
end

# include the extension 
ActiveRecord::Base.send(:include, ActiveRecordExtension)

Create a file in the config/initializers directory called extensions.rb and add the following line to the file:

require "active_record_extension"

Inheritance (Preferred)

Refer to Toby's answer.

Monkey patching (Should be avoided)

Create a file in the config/initializers directory called active_record_monkey_patch.rb.

class ActiveRecord::Base     
  #instance method, E.g: Order.new.foo       
  def foo
   "foo"
  end

  #class method, E.g: Order.top_ten        
  def self.top_ten
    limit(10)
  end
end

The famous quote about Regular expressions by Jamie Zawinski can be re-purposed to illustrate the problems associated with monkey-patching.

Some people, when confronted with a problem, think “I know, I'll use monkey patching.” Now they have two problems.

Monkey patching is easy and quick. But, the time and effort saved is always extracted back sometime in the future; with compound interest. These days I limit monkey patching to quickly prototype a solution in the rails console.

You can just extend the class and simply use inheritance.

class AbstractModel < ActiveRecord::Base  
  self.abstract_class = true
end

class Foo < AbstractModel
end

class Bar < AbstractModel
end

Step 1

module FooExtension
  def foo
    puts "bar :)"
  end
end
ActiveRecord::Base.send :include, FooExtension

Step 2

# Require the above file in an initializer (in config/initializers)
require 'lib/foo_extension.rb'

Step 3

There is no step 3 :)