Time Machine backup is the built-in backup feature of OS X. When you take a backup of your system, files and folders, It keeps a copy of them all, so that you can “back in time” to restore files or your entire system.
Before you can use Time Machine, you need to select a backup destination, recommended backup destinations.
External hard drive, external hard drive connected to the USB port of an AirPort Extreme 802.11ac, AirPort Time Capsule or OS X Server on the network.
Using Time Machine with external drives
Make sure you have connected an external hard drive on your Mac, before we go ahead we have to make sure the external hard drive is formatted correctly. [note: make sure its empty or do not have any useful files]
Launch disk utility and select the external hard drive on the left pane, select the erase tab, rename the external hard drive to something you useful [optional] and then click on erase.
Click on Erase again on the confirmation dialog box, now we are ready to take our first time machine backup.
Launch Time machine from system preferences and click on select disk.
Now it will display all the disk available on your Mac, we will select the external hard drive that we just formatted.
Select the external hard drive and click on use backup disk, by this time time machine backup is ready to take its first backup in next 2 minutes.
Time Machine keeps hourly backups for the past 24 hours, daily backups for the past month, and weekly backups. The oldest backups are deleted when your backup drive becomes full
You can encrypt your backups if you like, [recommended] you just need to check on encrypt backup disk and set a password you remember.
Exclude files or disk
You may not want to take back all the files and devices that available on your Mac, so before the time machine runs its first backup, click on options and browse for those files and devices you want to exclude from making a backup copy and click on save. You can see by default the external hard drive is excluded.
That’s it, now time machine will create a copy of backup of the data in the external hard drive you have selected. If you want to customize the scheduling of time machine backup you can use a program call time machine editor.
Screenshots and refrences: Kanal von Cloudbackuping