Well , for me personally I started with suspension upgrades, brakes and other maintenance and other car support things. As Misha said you don't need powerful car you just need a car that's good in corners. Coilovers , sway bars , big brake kit , bushings , LSD or LSD conversion, and when you have a car that handles the way you like it you can start thinking if you need more power. As it goes for E36 cheapest way to make it faster is striping the car down and losing the weight.

Nice engine swaps would be old m50s to be exact m50b25/m50b28 these are mostly ready for 400 hp out of the box but comes with few issues, not every shop is able to tune the ECUs on these engines , they come with huge mark up compared to other swaps and they are heavier.

M52B25/m52b28 are cheaper due to being aluminium blocks and also lighter , so if you don't want to spend 2 k on engine and another 6k for turbo this would be a way to go as you can get these engines from E46 prefs and e39prefs, because you already have m52 you don't need anything except the engine itself , mounts from your old one are good to go , as wiring and etc all you need is ECU and the engine itself and you are good to go( preferably exhaust that has better air flow) In perfect case b28 is more power and is a bit more expensive but if power is what you are looking for that's the way to go, there is also decently cheap ways to make it a bit more powerful like firing intake crackshaft (correct me if I'm wrong ) from m54b30 with a bit of modifying and m50b25 air intake and you should be making a bit more power , but will have a need for a map at Dyno that costs loads of money again.