what is the first step I should take with my new Mac mini M2, before transferring data from old Mac?

Do not be confused by what has been shared above.

The new Mac mini does not need to be erased for a clean install. It comes with a clean macOS version installed on it and all that you need to do is turn it on. Then Migrate from your old Mac or better yet, your old Mac's Time Machine backup during the initial setup.

Again the most reliable way, is to follow the steps at > Transfer to a new Mac with Migration Assistant - Apple Support

Turn on and start the Initial Setup, then Migrate from your old Mac's Time Machine backup when prompted.

see > Transfer to a new Mac with Migration Assistant - Apple Support

If you’re more on the “clean install” option:

Personally, and without contradicting “the” preferred manner, i am a fan of taking the opportunity for a real cleanup.

that means longer, but yes: everything (data only) on an external drive. 

then reinstall apps from scratch (latest compatible versions).  It may allow you to realize yoo no longer need to occupy real estate on your internal drive for an app you have not used for years and no plans either to use it!

then, same reality when moving back your data: your 76 copies of same picture may not be necessary. Other data may live happily on an external drive or in a dropbox or elsewhere.  Data from your wife’s profile (and that profile itself) may no longer be necessary now that she has it on her own mac (or if you replaced her 🤣)…. 

More importantly, you are limiting risks to bring back corrupted data or programs to the new mac 🤷🏽‍♂️

Yeah, that means a few hours +++ but it may be a better investment than later having to cope with lack of space, an unidentified issue with a culprit you brought back….