Water colour pencils, great idea!
Another trick is to use conte chalks, conte pencils or pigments. Pencils you can sharpen and draw directly on the model. Then use a smudge (a paper tool for smudging contes and chalks for drawing) to feather out the edges. Conte chalks can be ground up in a mortar and applied directly with a smudge by dipping the tip of the smudge in the powder, then applying it to the model. The same method can be used with pigments. You can get contes, chalks, smudges and pigments all at your local art store. Similarly, you can use this stuff as a cheap alternative to the pigments and weathering products from the hobby store. These can be applied with brushes, makeup applicators, God knows what else.
Here's an example of the smudge and ground up powder application.
...and the final product.
Cheap. Easy. Only one word of warning, one has to seal these in with a varnish. I usually do a gloss coat for washes and decals, then a matt varnish. This will make your pigments DARKER. Always go a little lighter than the desired colour. Note the browns and greens I used at the beginning and how they ended up.
