At least with this I will be able to upgrade comparatively cheaply in the future as I will be able to do it one component at a time for a while.
Unlikely to happen, those components don't allow for much of an upgrade into a gaming rig. If you want decent options to upgrade, you're going to have to double your budget.
You'd have to start with at least Intel LGA1055 socket motherboard, even mATX, Core i3, one 4GB RAM stick so that you can later get another one as mATX boards usually only have two RAM slots. And then the best GPU you can afford. AMD Radeon offers best bang for the buck in low to mid range of cards.
If doubling the budget is not an option, save the money to buy xbox games unless you really need to upgrade the PC for other reasons than gaming.