Setting up Time Machine on new iMac

I just got a refurbished iMac running Sonoma. I have a 1TB external SSD connected. I want to run Time Machine.

In System Settings>General>Time Machine it lists my external drive underneath Time Machine. But under my external disk it says "waiting to complete the first backup. Next backup: After the disk is connected."

When I click "Options" under exclude from backups it lists the external disk. Does this mean don't back up what is on the external disk?...or does it mean exclude the external disk as an option to use as a back up?

Thanks