I don't really know what people mean by moving the home folder to the external?
For the last 15 months I have been booting my base model M2 mini from an external SSD.
To begin with I used a 1TB SSD in a USB 3.0 enclosure (total cost £60). Although its speed was a mere 360MB/s it did all tasks including video rendering and exporting within 4% of the internal . . . to all intents as fast. Only copying massive files would have taken longer.
Three months ago I got a 1TB NVMe in a Thunderbolt enclosure. This drive is faster than the internal but the improvement over the USB 3.0 for normal tasks is minimal and only shows up in a side-by side timed test.
As for how I set it up, the first thing I did was startup the mini in the usual way putting in my details.
Then I connected the external and installed Sequoia (from a previously downloaded installer). After that it was simply a matter of inputting my details as they were asked for.
I use the external as my "computer" and could always boot into the internal SSD if I wished but I don't.
I have heard that certain items like Apple AI and Pay may not work on an external but I don't need them. If I did I would simply boot into the internal whenever necessary.
Regarding DIY on your Mac, your warranty will become void the moment you take the back cover off. So if it suffered some failure (nothing to do with you) Apple would refuse to cover it.