If you would like a persistance partition rather than a parition file for the LIVE casper-rw file system.
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Insert USB flash drive.
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Partition Disk
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Remove Partitions
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Create Primary Partition #1 with size 1GB and file system Fat32
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sudo fdisk /dev/sdc
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...Create Partition
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Create Primary Partition #2 with size of 2GB and filesystem ext3
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sudo fdisk /dev/sdc
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...Create Partition
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sudo mkfs.ext3 -L casper-rw /dev/sdc2
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Create Primary Parition #3 with size of 2GB and filesystem ext3
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sudo fdisk /dev/sdc
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...Create Parittion
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sudo mkfs.ext3 -L home-rw /dev/sdc3
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sudo sync && sudo partprobe
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Run Menu: Administration: Startup Disk Creator
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Choose a small persistance file.
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Make Startup Disk
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gksu nautilus
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delte caspter-rw file
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reoot