Step 1: Open your image in photoshop
Now is a good time to crop out the subject and adjust the 'levels' (Image>Adjustments>Levels) as well as the contrast. Get the subject's colors different from the background.
In this image I just have the original photograph before I cropped and adjusted the colors.
Step 2: Apply the cutout filter
This will bring up a preview window and some extra controls (image attached)
Your options will be:
Number of Levels - The number of colors that will be used to make up the image. The stencil was a 3 layer stencil, but if I set the levels to 3 it just became too difficult to make out.
Edge Simplicity - Higher the number the straighter the edges become but you lose detail.
Edge Fidelity - experiment with this one, I dont think it makes enough difference when you have the x-acto in your hand though
Step 3: Final changes
Using the 'magic wand' tool and lasso tool I got rid of the background.
Step 4: Print and Cut
After you are done printing grab an x-acto knife, box cutter, scissors or whatever else you want to use to cut out the stencil.
When planning a cut think in layers. For example I have a base layer, so I cut the entire outline of the pillbug out (bottom image) then the midrange color which covers alot of the base color, then the highlights on top, all sprayed in order of course.
Step 5: Spray!
Be sure to wait and let the paint dry between layers.