If you don't mind that it takes a long time to perform a backup (many minutes instead of a few minutes) then use USB. The interface for the Time Machine disk can be USB 2.0 or Firewire 400 or Firewire 800. It should be noted that if the Time Machine disk is small, it will need to frequently delete an older backup to make room for a new one, and that takes more time. Hence, the smaller the external hard drive, the less history you can save.
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When the Time Machine is disk gets full it just removes the oldest backup to make room for the new backup. For example, to back up 30GB, use a 80GB hard drive. If all you want to do is keep a few days or a few weeks of older versions then an external drive a little larger than what you currently use would be sufficient and save you money. If you want to be able to go back in time by several months to recover a lost file or an older version of a file, you need the extra size. You need the extra size because the Time Machine keeps a running history of all the changes you make. In other words, your Time Machine backup drive should be about three times the size of what is being used in your internal drive. If you're currently using only about 30GB of your 500GB hard drive and you don't expect to be adding a lot of videos or photos in the future, then you can safely use a 120GB hard drive. The size needed for this hard drive depends on how much space you expect to use on your internal hard drive. You will be using that new external hard drive to work from until you're ready to repair your Mac. When your internal hard drive fails, you will then need another external hard drive to restore to from Time Machine. You need to purchase an external hard drive to use with Time Machine. Keep in mind that what follows is just one of many ways to protect your Mac. I'm going to talk here about what I recommend as the best way to protect yourself from a catastrophic hard drive failure.