Time Machine and storage questions In researching Time Machine usage issues, I have come across other questions that might change the way I have always arranged my drives.

Back in the 'olden days' when internal drives were smaller--say 10 GB--I would attach an external drive for most of my storage. (Keep in mind that my Mac use goes back to my treasured 128K Mac with no hard drive and has evolved since then.) My current iMac had a 750 GB internal drive which died and is being replaced with a 1 TB drive. I also have a 1 TB external drive.

Being a creature of habit I have retained my time honored practice of using my internal drive for the OS (currently 10.9) and it's associated files, my applications and whatever files the Mac wants to store there. ALL of my stored files are on the external drive. I am a fairly light user so the above arrangement results in about a 5% or less usage of each drive.

Due to the recent 'death' of my internal drive I am now planning on using TM to back up my data and have been told to use a dedicated drive for that purpose. My plan was to get another external drive for that purpose. But, I am seeking opinions to see if I should re-think my disk usage in light of current disk capacities. Given the vast amount of empty space on both my current drives (as I said probably 90% or more) should I consolidate my internal and external drives on the internal drive and format the external drive for TM? It seems to me that I have an insane amount of free disk space so that buying a second external drive to be a waste of money-at least at this time. Of course I can always purchase another drive later if my needs point in that direction.
Putting everything on the internal drive and using the external drive for Tim Machine will provide you with two copies of all of your data.  That way if either drive dies, you will not lose much data. 

Also, a best practice for Time Machine is to keep the drive connected and mounted at all times. This way a backup will be done every hour and will always be current.

My recommendation would be to consolidate everything on the internal drive and use an external drive for a time machine backup. You will probably be OK for quite a while, unless you start acquiring lots of music, movies, or TV shows. I believe that Apple recommends that the Time Machine drive be at least 1.5-2 times the size of the drives it is backing up. This may not be necessary in your case, your external 1TB drive should work fine. The OS will alert you when it has to start deleting older backups because the disk is getting too full.