Installing binding, the decorative and protective edging around the bodies, and sometimes the necks, of an acoustic or electric guitar, is not a particularly difficult task. It does, however, require some woodworking skill, specialised tools and, most importantly, a great deal of patience. The binding itself, as well as many of the other supplies required, can be purchased though a speciality lutherie supply store, many of which can be found online. The router and bits are available from lutherie supply outlets as well, but can probably be obtained more inexpensively from a "big box" home improvement retailer.
Clean up the bottom edge of the binding that will be glued to the guitar by clamping a small coarse-toothed leveller file into a vice and pulling the binding strip across the file to create a smooth surface.
Determine the height that you would like your bindings to be if you are installing bindings on a guitar that does not currently have binding or measure the depth of the routed edge if you are replacing the binding on an existing instrument. Trim the bindings to the proper height using band saw or jigsaw. A band saw will provide a more accurate cut since a fence can be set up to regulate the cut, but you can guide the cut by hand as well.
Route a channel for the binding if you are installing binding on a currently unbound guitar or clean up the channel with acetone if you are replacing binding on a bound guitar. You may choose to add binding to just the top, but traditionally, guitars have binding applied to both the top and bottom. To route a new channel, use a Dremel tool with a router base or other small router with .210-inch bit and bearing set and route around the entire edge of the guitar from the neck heel on one side to the neck heel on the other side. Be sure the guitar is firmly clamped down the work surface to prevent movement during the routing process. It is best to remove the wood in multiple passes rather than all in a single pass to avoid tearout.
File any irregular areas in the channels smooth with the leveller file after routing is complete.
Bend the bindings to the shape of the guitar body. Use a hair dryer or a heat gun held 8 to 10 inches away from the binding and keep the heat moving back and forth along a section 6 to 8 inches long. See the warning below regarding the flamability of the binding material. Fit the binding into the channel before it cools, and tape it in place with masking tape until it cools and sets into the correct shape.
Create butt joints where the square ends of pieces of binding meet. Acrylic glues melt the ends of the binding material so the joint appears seamless.
Remove the binding from the guitar once the pieces have cooled and taken on the required shape.
Glue the bindings into the channels using an acrylic glue such as 3M Scotch Weld or Weld-On #16. Work with small sections at a time, as acrylic glues set very quickly. Secure the sections to the guitar body immediately with masking tape.
Scrape the bindings flush to the wood using a single edge razor blade or scraper. You will need to wait approximately 2 days to perform this task to allow for the glue to dry completely. Always scrape in the direction of the wood grain, and avoid digging into the wood. Use your index finger and thumb as a depth guide to judge whether or not your scraping is flush.
Sand and apply finish over the binding only if you plan to finish --- in the case of a new instrument --- or refinish the guitar. Sand the binding and the wood using a 220-grit or finer sandpaper. Apply finish or clear-coat according the manufacturer's instructions.
It is vitally important to keep binding materials away from open flames or other sources of ignition. Binding material is manufactured with acetone and other flammable components and will readily ignite. Always follow the safety instructions that come with your power tools, especially the use of eye and hearing protection.