The trick is to use sandpaper. It’s a good quality abrasive material and is readily available. You’ll want a selection of different grits – low grits to get started, higher grits when finishing. The reason this is cheaper is that you can get a selection of 5-10 different sandpapers for under $20. Getting even a couple of decent sharpening stones wouldn’t be possible at that price. In the long run, they’ll last longer but this is a budget option we’re talking about.

I wouldn’t give up on Craigslist or garage sales.. For around $1K or less, you can pretty easily find the four big ticket items (TS, BS, Jointer and Planer) and have the extra $2K to spend on accessories, material, DC, other goodies, etc. The key is patience and persistence, and if applied correctly, you can have a fantastic setup for very little compared to purchasing new. If you are setting up a business, you don’t usually have the time to scour for good deals, but for a personal shop, there is no pressing need other than that itch to get something done.
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