I also have a fairly modest setup, built up from my Dad's old "home repair" type woodworking shop (I'd guess at least 50% of dads must have these). My equipment:
Sears 1hp 2"x42" belt / 8" disc
No-name 1hp 6"x48" belt / 9" disc
No-name 1/6hp 1"x30" belt
Sears 1/2hp(?) band saw
heavily modified for metal-cutting speeds
Sears 1/2hp(?) floor drill press
Dremel Heavy-duty flex-shaft tool
Sears 1/3hp 3600rpm grinder / buffer
No-name 1/2hp 1750rpm grinder / buffer
Soldering / brazing torch
Hacksaw
Lots o' files
Sandpaper
As was mentioned, all you really need are files, sandpaper, and time. But for a powered setup, I'd at least want my Sears belt sander, a Dremel of some sort (capable of all tasks, lousy at most), and some sort of powered saw. You *need* a drill-press for the precision of a folder, but can get by with a hand-drill for fixed-blades I guess... but it won't be fun.
I started making handles for Benchmades in a college dorm room with a scroll saw that had a 4" disc / buffer on the side. That and a little sandpaper was all I needed, except the few minutes on a drill press I'd find here or there. Many have started with less. The key isn't how you do it, but
that you do it. If everyone had the will and the time to discover how easy knifemaking is, nobody would buy someone else's knife again
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-Corduroy
(Why else would a bear want a pocket?)