Does your local libary have Rigby PM Readers? Ours does and it is a great resource. The books are leveled and are not phonics readers, so they have more of a story line and are more engaging for children. Phonics is a very important component of reading, but not the only component. One of the most important strategies for a new reader when they come to a word they don't know is to say the first sound, go back and read the sentence again and think about what would make sense and look like that word.
To help him learn more sight words (the, here, and, come, etc), choose one word from a book he has read with you, have him find it or show it to him in the book, and then tell him that you are going to practice it so you can know this word quickly and use it in your reading and writing. Find lots of ways to practice the word (chalk, markers, sand, etc). Then always go back to the book and have him show you the word and read the page that has the word. That way he makes the connection that practicing words helps him become a better reader
You can also make your own books together. Many children learn to read by writing. Use photographs, your children's drawings, etc. It can be about experiences you've had as a family, fascinating facts learned, dreams for the future, etc. Have your children dictate the stories while you model saying the words slowly and writing the sounds. Link the sounds to known words (i.e., "Dog, that starts just like Dad.")
Would he be interested in having you create his own word bank. Have you read any of Sylvia Ashton Warner's work on the key word approach to reading? With the key word approach you ask children what words they want to learn and put their words on cards, doing just one or two words a day. They keep their word cards in their own special box. At first you can spread out the words and ask them to find certain words, as identifying and finding are easier tasks than reading the word on their own. Eventually you can add a verb such as "loves," "likes," "wants," and your child can make their own sentence with their name, the verb card, and their special key words. Rather than teaching your child the phonics and then teaching them how to read words using the phonics, you are helping them develop a love of learning words, then connecting it to the phonics ("Look 'monster' and 'mom' both start with M! Can you hear how they start the same?") Some children respond better to learning to read in this way as it makes it more meaningful for them
If he doesn't know all of his letter sounds, you can create a family alphabet book. Use big pages and have a page for each letter. Write both the uppercase and lowercase letters on the pages. Put family photographs and names on the correct alphabet page and then have fun finding pictures or drawing pictures for other letters. Work on one letter at a time or add to it periodically throughout the year. Model excitement of discovering about letters and sounds, "Wow, this is such a cool rock! Let's take a picture of it and put it on the R page of our alphabet book"