Decide how you plan on using your knife, most of the time. This directly affects the length of the blade. A long blade is conducive to butchering, chopping, and other kinds of food preparation, while shorter blades are suited to carving and woodwork. Determine as well what handle dimensions you desire. Obtain your materials -- a blade in the appropriate length and a block of wood for the handle -- from a hardware store or an arts and crafts store.
Finish your blade. Sand it with 150 grit ebony paper, then move up to 220, 320, 400, and 600 grit paper until the blade reaches your desired finish.
Make your bolster, if desired. The bolster must fit tightly, adjacent to the handle and flush with the edge of the blade, with no wiggle. Draw the necessary shape to accomplish this on your steel sheet, and mark the center of the slot with a punch. Use a drill bit, of a size slightly smaller than your slot, to make a hole in the slot. Use needle files to work the slot to your desired size and shape.
Lay your blade adjacent to the wood with the bolster on. Mark the exact spots where the blade will enter and exit the wood. Mark the borders of the bolster on the wood. Drill a hole in the wood that is the length of the bolster, and use a float tool to make the hole sufficiently wide.
Attach the blade and/or bolster to the wood with epoxy.
Use a 200 grit belt grinder to profile your blade. Use the corner of the wheel where you need to remove the most material. Pushing into the whole belt will create resistance, and not remove material as fast.
Bevel the edges of your blade, using a 400 grit belt with a 1-inch wheel.