Step 3: Quantise Picture
There is normally a function called posterise. That is the function you want. This is the case on paint.net and photoshop. You might want to apply an average noise filter reduction first to smooth the image too.
I actually used an iPad app to do this (see comments for details), but it can be done in pretty much any paint software. If you don't have any paint software paint.net is free and fairly easy to use.
I chose 3 colours. Generally paint software lets you choose the limits if each colour. Try to get a good balance.
Print out at least 2 copies. 1 for cutting through, and 1 for reference when separating layers later. I printed 4 just in case I made a mistake.