Start by cutting the paper into strips, 6 1/2 inches by 1 1/2 inches (or whatever measurement you need; use your ruler).
Brush a thin layer of Mod Podge onto the back of the paper strips. Be careful not to oversaturate the paper.
Lining up the paper at the eraser end, tightly wrap the paper around the pencil by slowly rolling it around and smoothing any bumps or air bubbles if necessary. Let the pencils dry completely before sharpening.
Notes
Step 1: You'll want to get the length pretty spot on. You don't have to get the circumference as accurate, though you don't want the paper to overlap too much. The paper wrapped pencil still needs to go into a sharpener.