Jonas has the right idea. The world is full of people telling you, “you just absolutely have to have —- “(fill in the blank). Too much of the woodworking advice comes from those with something to sell. I can remember when woodworkers were advised that you absolutely HAD to have a Radial arm saw and trash compactor in every kitchen.
I have been in your shoes and my first piece of advice is: Recognize that this is about YOU! You have to look at where you are at in regards to your situation and where you want to go with it. For some, whittling a tree branch with a pocket knife into a spoon is sufficient. Some can’t be satisfied with a 4000 sq.ft. super-shop.
Jonas is right with is advice to accept that coming up with solutions to the challenges rewards you with an increased skill level.
To answer your question and knowing what I know now:
1) If I had $500 to blow on traditional tools I would consider myself fortunate and would be more concerned with function over collectability.
2) I would forget about EBay, Woodcraft, Rockler, Lee Valley, Highland Woodworking, or any other retailer. You can let them have their profits later.
3) Estate sales, flea markets, yard sales, thrift stores, and Craigslist would now become my favorite shopping venues. Most traditional tools are either extremely high priced new items or have been around for a while and either in the hands of dealers or are in someone’s collections. Estate sales, flea markets, and yard sales are filled with stuff no one longer wants. Be patient and have a definite list of what you want right now, and a smaller list of what you think could use soon. Be patient. Estate sales are great because many heirs don’t have any interest in the items or have a clue what they sell for on the open market. Many estate sales companies do realize the value but price items cheap because they just want to move a large volume in a short amount of time.
4) Don’t junk your power tools. Most shops are hybrid and the power tools can reduce the labor, help with the tool restoration, or can be traded off later. You would be amazed at the people willing to give up a whole garage filled with hand tools for a used router.
5) Find a local group of woodworkers to hang out with. As a group they tend to share knowledge and can often put you on to some good deals. Many of the older guys (or girls) would love to have you over for a cup of coffee and some shared shop time. You can pick their brains and can try out their tools.
6) Ask friends and relatives about any old tools they know about. They may have something or know someone who does.
7) Look for clues in ads about hidden tools. If someone is selling several power tool items they might have hand tools that they thought were just to small to list. They often just don’t realize the value of hand tools.
8) Use recycled or found materials for you projects, for practice, for shop made tools, etc. Save the money for tools that should last you years instead of materials ending up as sawdust and shavings..
9) Build it yourself. Many traditional tools and appliances can be shop-built and will give you good practice in the building.
10) Delay buying books, videos, or paid classes until later. There is a huge amount of such information available in your local library and online. Traditional woodworking has been around a long time and has generated lots of information free for the asking.
11) Don’t get caught up in the idea that you have to have many function-specific tools. It’s nice to have lots of tools but a fine tooth rip backsaw will dovetail, crosscut, and do most tenon cuts. I have four backsaws at my bench right now but I could easily get by with one. You can easily do mortices with a bench chisel.
12) Sometimes a cheap new tool is your best option. You can spend $10 at the yard sale and bring back a wonderful old Disston crosscut. Then you would probably have to restore it, after you bought the tools, gained the knowledge of how to do it, and spent a few hours in the work. Or you could just go to Home Depot buy a $10 crosscut saw and have a functional tool for a few years. You are probably just going to use it for rough cutting a few boards to length at a time anyway. Harbor freight c clamps seem to be pretty good and their planes can be turned into decent scrub planes if you can’t find an old plane to convert. All tools don’t have to be collectable to perform so you have to figure out if you are a user, collector, or both. If you want to do both, be prepared to spend more time and/or money and learn some more skills.
13) Don’t jump on the “super bench” bandwagon. You can do good work on a simple basic bench (if you need a bench at all for the kind of work you do) for a long, long time. Save the “super bench” for a future project for after you have refined your needs and your skills.
To wrap this up, it all depends on what YOU want to do. Windsor chair making requires tools different from box making and that will drive your decisions on what constitutes a basic set of tools. If you want to do basic, traditional bench work, I would recommend the following, all used if possible or otherwise stated:
1) A “big box” crosscut carpenters saw for rough cuts, cheap, no special skills to prep for work and immediately ready.
2) A brand name, 12 inch combination square. Check it for square or adjust it.
3) A lock back pocket knife.
4) Some good pencils.
5) A plane set up for roughing. This could be a scrub or a fore, depending on how you would be working.
6) A plane set up for smoothing. I would prefer a #6 which could be used as a long soothing plane or a short joiner. These don’t carry the expense of longer jointer planes and perform both functions. This is not my favorite plane for either function but will do the work and keeps me to just the one plane. This would be the most expensive of all of the items on my list but still can be done for under $50 in my area. If you were willing to go through the set up process, you could use the same plane for the rough work of a fore plane with a cambered blade but this would get awfully tiring, changing back and forth for each task.
7) “Scary sharp” materials, a flat support such as a flat tile, float glass, ground marble, etc. and some courser paper for plane flattening.
8) A small set of used brand name chisels, or a new small set from ALDI or Narex.
8) A study flat work surface (bench). There are substitutes for vises. There are substitutes for benches too but I did classify this as bench work.
9) A basic set of clamps, hopefully a set that will work with your bench to restrain work.
10) Finishing materials and tools as required.
11) A sharp 16TPI rip cut tenon-sized backsaw. A gents type saw could be substituted for some applications but I would prefer the previous type. A Ryobi type saw could be substituted and offers some advantages but is not my preferred saw.
12) A “eggbeater” drill and bits.
13) A coping saw. Not necessary for most functions but cheap and handy.
With this set, and materials, I could make most of the other devices and appliances needed for most work. The other tools that normally come to mind such as block planes, marking gauges, mallets, shoulder planes, etc., are not necessary to fundamental work or could be made by the worker.