On my install...
1. I sealed mine off with heat shrink and tucked in in the wire Loom along with the other cables. I did not cut them.
2. A water tight
Butt Splice that I then put heat shrink over each wire. If you stagger them you can make a tighter bundle.
3.
Spacers are typically inexpensive.. But more importantly is maintaining a good chainline to the rear cassette. You should be straight front to back when in the middle of the rear cluster .