You want to record vocals only and your budget is $500...you're halfway to the knowledge we need to answer your questions, and you need to do somemore research...check out this site for help -
http://tweakheadz.com/guide
But to tell you what we need - what is it you're really trying to do? Are you recording your acoustic guitar balads for your GF or are you trying to make a CD Demo of your rapping? What program do you have to work with? Is the 500 for your whole setup or just your interface/mixer/pre?
Here's some basics...
Any studio setup whether 500 or 500000 has a signal chain. Basically, this is the path your sound travels - both in (to record) and out (mixdown). A typical homebased recording setup uses a all-in-one recorder or a computer - I'm gonna guess you're using a computer. Here's an example of a signal chain:
In: Source (vocal) - Mic -cable- preamp - interface - computer
Out: Computer - interface - monitors
You need both, otherwise you won't hear what you're mixing and recording! You may use your software to output your mixes to a CD, so therefore not going out of the interface to create your final mix, but your mix is still coming out for you to listen to.
With 500 to get all of these elements you're gonna have to make some sacrifices - either getting more cash or settling for a 'less-than-perfect' sound. Here's what I come up with:
Mic - SP B1 (100) or MXL V67 (99) or
Shure SM58 (90) - getting anything on this list used will lower the cost...
Preamp - SP VTB1 (99) or M Audio DMP3 (159)
interface - M Audio Audiophile 2496 (99)
OR Preamp and interface built together! - M Audio Audio Buddy (99) or M Audio Mobile Pre USB (159) - this is where you're probably gonna land cause this is where you'll get your best 'bang for buck'...I recommend the Mobile Pre
Recording software - search for some free stuff, and avoid piracy - it's not nice
Out: Software and interfave - see above
Monitors...honestly, this is an area you shouldn't skimp on - get the BEST you can afford... Take a look at Music123 or Zzounds or some other internet store for prices - there's too much to list...
Now don't forget that you're going to need cables, a mic stand, a pop-filter and probably some room treatment. Too often people who set up their home studio don't realize that the room they record in affects the sound they're getting, and a bad sounding room will give you bad sounding recordings. Check out some more info about this by taking a gander at this site...there's LOTS of info here...
Anyway, I hope I helped.
jacob