New to vinyl, where to start?

That's actually a sweet little cartridge-no need to upgrade it. Herb Reichert examined it in Stereophile and found it to be quite good for the money.  I bought one and was shocked how good it was compared to my Benz-Micro. To get the most from vinyl it is helpful to learn how to set up and adjust the various parameters which a given turntable allows. Ensuring it is level, placing it on a solid platform, stylus tracking force, keeping records and stylus clean, etc. A number of basic tools are needed such as stylus force gauge, brushes for records and stylus and a few others. There are many good set up videos on YouTube. Michael Fremer of Analog Planet also has lots of set up advice but be cautious because he gets very esoteric. Stick to his basic stuff. To me, getting the most from vinyl is about optimizing everything you can. It is also a lot of the fun.

There’s more fidelity that can be had from the LP120XUSB. You can easily upgrade the stylus to the VM95 nude Shibata or microline.... or you could even take the plunge for something like Nagaoka MP200, or AT-VM540ML. You can add an isolation platform or better feet, change the RCA cables, add a better mat, damp the underside of the platter with Flexseal, line the plinth with modeling clay, add O-rings to the tonearm, and add weighted grip tape to the counterweight to shorten the moment of inertia. I have several other "more respectable" TTs, but this is my daily driver... I think it has more capability than most folks have tried to squeeze out it, and I’m duly impressed with the sound I’m getting from this humble TT on what I consider to be a pretty good system.

OK, that is good info. It sounds like you are a serious listener.

My simple advice is take advantage of all audio shop auditions you can do in your area. Try listen to kit that is within, below and seriously above your budget. Just get an idea of what stuff sounds like. Be open to new and used options.

Take your time, learn, debate, and have fun with this…

@hertzhead, @knotscott thank you, those are some great ideas for future projects!

@photomax that makes sense, thank you for the advice! 

You can possibly better the sound by using an external phono Amp, like the schiit mani or even an ifi phono Amp. Your headphones are fine and have pretty good reviews. To improve those, maybe a decent headphone Amp. As others have mentioned, that cartridge, which I assume is AT, can be upgraded just by swapping in another from the same AT line. You do not mention an Amp and speakers...but you do say you have only 500 bucks. It would be hard but not impossible to assemble something of quality together at that budget. You could look at the cheaper Cambridge Audio stuff like the AXA25 model integrated , $299/Amazon, paired with maybe some wharfedale’s. The diamond 220 speakers are still available for $249/Amazon brand new, great speaker for the money. Plug a schiit mani (about $100) into one of the line inputs of the above AXA25 integrated and you are all set. If you can scrape up another $150 above your 500 buck budget ($650) you can get the 3 above components and have a nice little set up. Records of decent quality vg+ can easily be found at the thrift stores. I scored many a good record from them. I’d rather have many records to play on cheaper set up, than too few on an expensive rig. Grab a spin Clean record washing kit, a carbon fiber brush, stylus cleaning brush, and some quality replacement record sleeves and you are good to go on that front. Then enjoy the music! Vinyl can be very rewarding...