My current project involves putting a 12"x16" acrylic windows on a
piece of particle board. The acrylic window is .220" thick and I need
it to sit flush in the particle board (the board is 3/4" thick). I
want to cut a hole in the particle board which is smaller then the
window allowing for a 1" lip on all sides. I then want to lower the
lips by at least .220".
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To lower the lip I think I need to use a router.
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4. Buy some low-mid level tools (like Ryobi). Maybe I don't need a
plunge router.

Nick

Easy way - More money - perfect finished product
A plunge router IS what you need as well as two bits.

Hard way - less money - not so perfect finished product
Drill - hand or coping saw, chisel, sand paper.

Dave