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Many years ago, I set up an external USB HDD as a Time Machine volume. I don't know whether I did anything special at the time (and this answer indicates I didn't), but I've been using it as both a regular external HDD to store stuff, and as a backup volume (Backups.backupdb/ folder) all this time.

When I tried to set up a new external HDD that I recently bought, it looked like it needs to be a dedicated HDD for Time Machine only. Time Machine Preference Pane did not allow me to use the existing volume, but insisted on deleting the volume and starting over, and then Finder showed it as read-only even outside of Backups.backupdb.

How can I set up an external HDD as Time Machine backup volume while allowing me to use it as a normal external HDD?

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According to Apple's documentation:

APFS or APFS Encrypted disks are the preferred format for a Time Machine backup disk. If you select a new backup disk that’s not already formatted as an APFS disk, you get the option to erase and reformat it. If the disk is a Mac OS Extended format disk that contains an existing Time Machine backup, you aren’t asked to erase and reformat the disk.

Note: The entire APFS volume is reserved for Time Machine backups. If you want to store files other than the Time Machine backup on the same physical device, use Disk Utility to create an additional APFS volume on the disk. The two volumes then share the available space.

So the problem is that, for a new external HDD, Time Machine requires an APFS formatted volume, and APFS volumes cannot be used for Time Machine and user data. This is a change from earlier versions of Mac OS that supported only HFS+ for Time Machine backups, and explains why Mac OS lets you store both data and Time Machine backups on the old HDD: it's not APFS formatted.

To use the HDD for both your data and Time Machine, create an additional APFS volume, using one for data, and the other for Time Machine. Alternatively, you could try setting up a Time Machine folder structure on an HFS+ volume on an older version of Mac OS, so that Big Sur and newer let you reuse that volume for backups.

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    I suggest you remove the last sentence. Trying to use the old style TM is not a good idea and the extra volume is so easy to do. Perhaps some more detailed instructions about adding the volume in Disk Utility as disks and containers are not shown by default.
    – Gilby
    Commented Jan 22, 2022 at 4:37

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