Cut a thin notch into the wood at the top of the pencil using the knife of choice. The notch should be about the same width as the paper clip.
Place a thin line of craft glue into the pencil notch.
Unwind the large end of the paper clip using a soft tips pliers. This can also be done by hand if the paperclip feels pliable enough.
Wrap the unwound end of the paper clip tightly around the notch in the pencil while the smaller end lies flat against the length of the pencil.
Wipe off excess glue and allow to dry.