Start by cutting straight across the sweater right at the armpit.
Your sweater will now look like a nice rectangle:
Next, cut the bottom off of a t-shirt (preferably in the same color as your sweater) and pin the cut side of the t-shirt to the cut edge of your sweater. (Right sides facing, as always.) Stitch the edges together, leaving a small seam allowance.
When you turn your skirt right-side out, it should look like this:
Now turn your skirt inside out and fold the top down about an inch. Sew across the front and the back, leaving unstitched regions at the side so that you can insert elastic.
Cut a piece of elastic so that it fits snugly around your waist. Place a safety pin on the edge to help pull it through the tube you have created. Once it is pulled through, stitch the edges of the elastic together. (Make sure it is not twisted first!)