MacOS – 500GB Macbook Time Machine Question

Yes, Time Machine will backup until it fills the backup disk and then it will start overwriting old backups to make way for new ones. However, if the volume of data you've told Time Machine to backup exceeds the size of the disk Time Machine is using to save the backups on, it will complain that the disk is too small. If you have a Time Machine disk which is smaller than the combined size of the hard disks used by your Mac, it's likely you'll need to manually intervene at some stage due to this issue unless you're very diligent about ensuring that you don't ask it to backup too much data.

Seeing that external storage is relatively inexpensive, I would leave the existing TM drive alone and purchase another external drive. That way, you can backup the additional data on the new drive to the TM disk, too. You wouldn't be able to do this if the additional data resides on the TM drive itself.

If you do choose to use the TM disk for non-TM data, I recommend partitioning the drive to separate the TM data from the non-TM data. If you ever need to reformat the TM partition, you won't need to move that additional data to another disk first, or visa versa.

All that being said, it is technically possible to use the TM disk to store additional data. I used to do it until #4 (below) happened and I lost ~10k .mp3 files I then needed to re-rip from CDs. (I did re-rip about 80% of the lost files to Apple Lossless format, so it wasn't a complete disaster, but I did lose thousands of files.)

There are several drawbacks you should keep in mind:

1. Time Machine will delete older backups more frequently when available space is low.
2. Performance on the drive will suffer when TM is running and you are accessing the additional data at the same time.
3. If you need to transport the additional data off-site, you'll also be taking your TM backup with you.
4. When (not if) the entire disk crashes hard, you will lose the additional data unless it is backed up somewhere.