It depends on how big of letters you are looking to make. Are they small 2" or larger 6"+? A scroll saw would be a great saw to have for smaller and even larger items. Scroll saws can be had for cheap on craigslist and facebook marketlace.
Larger letter and items a jig saw will work just fine. Do you have a drill? A jig saw doesn’t plunge well at all into middle of areas like the inside of an “O” for example. A drill would be used to drill a hole and a jig saw can then be inserted and go from there.
Orbit sanders are great and not expensive at all. Cheap ones can be had from $15-$20. A good solid sander like a Bosch is closer to $50. You can sand the face of the surfaces with the sander but I would do the edges by hand or with a sanding block.
Routers are amazing tools that can do so many different tasks its crazy. For this task I wouldn’t recommend a router. You wouldn’t have a way to hold the items safely and to no hurt yourself.
You can never have too many clamps. Start now and buy a couple and see what type of clamps suit your needs. If you dont have any now some inexpensive clamps are the Irwin quick grip type clamps and Bessey F style clamps. Clamps hold the work pieces down, up, or even together and act like a 3rd hand.
What types of tools do you have at your disposal now? A little more info in what you are looking to do now and later one will be a big help.