Is there a hard drive listed in the Time Machine panel, if not Choose Select Disk, and set it to the drive you wish to use.Choose the “Time Machine” control panel from under the “System” category.Open System Preferences by clicking on the icon in the dock.Log on to your computer with an account that has administrative privileges. Hard Drive storage is becoming less expensive every day, and you can get 2 TB of storage for under $150 USD.  The absolute minimum, I recommend, is 1 TB of  disk space. The amount of Drive Space for the Hard Drive is seriously based on your current Hard Drive size, but consider at least 3 times your current total hard drive space. Wired Ethernet should be at least 100 Mbit, or 1 Gb.  Do not consider using this if you are using 802.11 A/B/G, this is only reasonable if you have a 802.11 N network. Hosted via a 10.5 or 10.6 system, or Time Capsule / Airport Extreme), will work, but expect USB 2 or less performance. Internal (eg Mac Pro) Hard Drive is ideal (But not another partition on the boot disk).A Hard drive to store the Time Machine Backups on.Mac OS X 10.5 or Higher (10.6 or 10.7 recommended!). Spotlight and Time Machine both rely on the same basic File Change tracking mechanism (fsevents). To some extent Time Machine relies on Spotlight. The only files that are stored in a backup, are the ones that have been changed since the last backup.  This allows Time Machine to not duplicate any  files, or directories, that have not changed. Time Machine offsets the Incremental backup space requirements, by making all the unchanged files, a hard link to a previous snapshot of the directory or file. As a bonus, since the backups are incremental, the user does not even need to use Time Machine to restore the backup, the user can find the copy they wish to restore, and manually drag it to the new place. So the incremental Time Machine backups do consume more space, but they are potentially more reliable by design. If any of the differential backups become damaged, then the file can not be completed restored.  To restore a differential backup, the software would have to restore the original file, and then re-apply each change, repeating as necessary.  While a differential backup greatly reduces the space requirements, the restoration process becomes much more complex.  Retrospect will compare the new version of the file versus the old version, and store only the changed portion of the file.
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