Components
Gathering components for building a homemade digital readout can be the most difficult part. Many of these components may not be available locally, so you'll have to order them from online or catalog suppliers. The hardest-to-find part is the digital dial indicator, which you will probably have to order from an online supplier. You'll also need neodymium disc magnets, which are probably available at your local hardware store. In addition to these items, you'll also need about 12 inches of 1-inch square aluminum bar stock and epoxy.
Cost Analysis
When deciding whether or not to build your own digital readout for a lathe, consider the cost of a new, commercially prepared digital readout. Digital readouts have been dropping in price recently, so compare the price of a new one with the prices of the individual components. Consider your time as well when making this calculation. This project will take you at least three hours once you have gathered all the components. You may also have to rent time at a machine shop for cutting the aluminum.
Construction
Prepare the aluminum bracket by machining holes for three magnets. The holes should be deep enough that the magnets are flush with the surface of the aluminum when they're inserted in the bracket. Fix the magnets into place with epoxy and mount the digital dial onto the bracket. For a sleeker appearance, you can recess the digital dial onto the bracket by machining its silhouette onto the top. Then you need to drill mounting holes onto the bracket and mount it to the lathe.
Usage and Maintenance
One possible problem is that if you push the lathe's plunger too far, the indicator could be damaged. To prevent this, add a stop to the mounting bracket to make contact with the cross-slide before the plunger gets too close. The downside to this preventative measure is that the stop can reduce the indicator's range if it's poorly placed. Check the magnets every time you use the lathe. Epoxy can deteriorate over time, and the magnets may loosen in the bracket. Add new epoxy if you notice that the magnets have slipped from their original places.