Why does RAM usage while using Final Cut Pro keep increasing to 40+ gb?

You don't have Chrome but still have its "keystone" agents, which were associated with problems with FCP:

Unsigned Files:

Launchd: ~/Library/LaunchAgents/com.google.keystone.agent.plist

Executable: ~/Library/Google/GoogleSoftwareUpdate/GoogleSoftwareUpdate.bundle/Contents/Resources/GoogleSoftwareUpdateAgent.app/Contents/MacOS/GoogleSoftwareUpdateAgent -runMode ifneeded

Details: Exact match found in the legitimate list - probably OK

Launchd: /Library/LaunchDaemons/com.adobe.ARMDC.Communicator.plist

Executable: /Library/PrivilegedHelperTools/com.adobe.ARMDC.Communicator

Details: Exact match found in the legitimate list - probably OK

Launchd: ~/Library/LaunchAgents/com.google.keystone.xpcservice.plist

Executable: ~/Library/Google/GoogleSoftwareUpdate/GoogleSoftwareUpdate.bundle/Contents/Resources/GoogleSoftwareUpdateAgent.app/Contents/MacOS/GoogleSoftwareUpdateAgent -runMode xpchost

Details: Exact match found in the legitimate list - probably OK

Also:

You still have Flash installed, even though it is no longer supported. You should uninstall.

These two are old and should not be used:

/Library/Extensions

ufsd_NTFS.kext (15.0.23 - SDK 10.10)

Seagate Storage Driver.kext (5.2.4 (26840) - SDK 10.4)

And also there are a lot of other stuff.

Here is how I suggest you do a clean install:

1) VERY IMPORTANT - BACKUP! You are about to erase your system drive. Never do that without a backup - well, actually, you should have at least two... I recommend a Time Machine on one drive, and a full clone of your system drive in a separate one.

2) Download the full  Big Sur installer from the App Store. If the installer starts automatically, quit it.

[if the OS you want to install is an older one, like Catalina, Mojave or High Sierra, use this link instead: https://support.apple.com/en-us/HT211683]

3) Create an installer drive on a thumb drive, following the instructions here:

How to create a bootable installer for macOS - Apple Supportsupport.apple.com › en-us

4) On recent macs, you may need to authorize booting from an external drive, which may be disabled by default. You do this in "Boot Security Utility".

Information about this is available in this support document:

https://support.apple.com/en-us/HT208198

---- do not proceed further without a backup!!!! ---- 

5) Restart your mac holding the Option key, and select that installer disk to boot your mac

6) Use Disk Utility to reformat your internal drive as APFS

7) Quit Disk Utility and start the installer. 

8) When asked, choose to migrate content from "another mac, time machine or drive".

IMPORTANT: elect to migrate ONLY user accounts; NOT applications, settings or other files

Could you give details of the external drive, what it is, how it’s connected, and how it’s formatted?

What Tom said.

Also: if this a drive you are using for backup it is not a great idea to use it for editing as well.

Consider getting yourself a nice 500GB external SSD and use it for your editing. You can offload stuff to your hard drive when you’re done with a production and make space for the next one on that SSD.

Post an EtreCheck report after giving the application Full Disk Access in the Privacy System Preferences. Copy the report and use the Additional text button to add it to the reply.

You should give yourself a nice new year present and do a clean install.

You will be amazed at how well your mac will perform.

In a separate post I will give detailed instructions on how you may perform a clean install.

IMPORTANT: be sure not to then migrate everything back, that would defeat the whole purpose. Migrating just the user accounts is fine, and will get you all your music, e-mail, photos, preferences, etc.

Any third party plug-ins in use?

Al

Do you have the Choose Browser installed.

Al

Chrome Browser.

The drive needs to be formatted macOS Extended of it’s a spinning drive, APFS if it’s an SSD.