I keep my stuff distributed as follows:
M1 iMac internal 500GB SSD: all the OS stuff, apps, general documents (synced to iCloud Drive), etc.
Samsung T5 1TB USB SSD: Photos library (also synced to iCloud). I have not had any performance issues running Photos off this drive and editing RAW files in an 800GB library. Soon to be replaced with a 2TB T7 when the library starts to get too big soon.
4TB USB HDD: Time Machine, plus X-Plane because it’s enormous and don’t really care if it gets lost and I have to reinstall it.
Synology NAS with 8TB: Plex library, plus archival storage of older stuff I rarely need access to and don’t need to keep on the iMac, such as originals for HDR and panorama stitched images.
2TB USB HDD: partitioned in half to accommodate SuperDuper backups of the iMac and Photos SSD; kept in my mailbox at work.