Step One: I drew out a design on Bristol board and cut it out using a utility knife. Then held it to see if it feels good and made any adjustments.
I laid my pattern on the material and traced around it with a marker. I am using a piece of channel iron (3 1/4" X 1 1/2" and 1/8" thick) that I got as scrap at work.
Step Two: I cut out the pattern with a "Dremel" type rotary tool, using the fiber type cutting discs (The fiber discs last a lot longer than the cheap ones). I use a rotary tool rather than an angle or bench grinder, as you can get allot closer to your pattern, and it do not tend to over-heat the material.
Step Three: I have finished cleaning up my pattern. I using a 1X32 belt sander and disk sander, plus a drum sanding kit on my drill press.
Step Four: I have drilled holes in the handle section to pin my handle material; shallow holes in the handle section to help my glue stick; and milled decorative holes in the blade section. Then sanded the material down with Aluminum Oxide sandpaper, starting with 80 grit and working down to 400 grit (I only sanded the handle section with the 80 grit to remove the rust, leaving a rough surface to help my glue to stick). bevel the edges of the blade using a 1X32 belt sander. Finally polished the blade section with black, green and lastly blue polishing compound using buffing wheels on my drill press.
I would now temper and heat treat the metal if I had access to a kiln, and then have to re- polish the blade.