I use an external Western Digital Hardrive Model #WDBAAA6400ABK-NESN that I purchased from Amazon. It provides for automatic and continuous backups. If any file of mine is changed it is backed up when I close the file. When I have had to rebuild my system, it has worked fine and I was able to restore all my files. Further if I need to go back to a previous version of a file I am able to do that as well. My personal setting is where I can go back up to 5 file versions prior to the current one. I also have backups on several DVDs I keep offsite that I update about monthly. One of these is constantly updated while for the other DVDs it is a 1 time deal once the DVD is filled. Should there ever be some sort of catastrophe at home or if the external hard drive fails, I have a way of going offsite and getting back the contents of my files. It is recommended that you have another backup away from your computer should this instance occur.
I also am a Dropbox user. I have blogged about Dropbox in the past. http://computerconciergeny.com/3/post/2010/06/dropbox-a-real-good-program-for-file-sharing-and-accessing-files-away-from-your-computer.html I recommend it for all. You can sync up to 2 gb for free to your Dropbox account. However there are ways to get even more storage free. The most common is suggesting it to someone and when they become a Dropbox user from your suggestion both of you get an extra 250mg of storage.
This is the backup system that works for me. What type of backup system you need depends on various factors. For those living in Queens and Nassau County, NY call me at 917.572.3468. I can determine the backup plan that is best for you. Many people think a hard drive failure cannot happen to them. Nothing is farther from the truth. You need to have a backup plan and follow it before it is too late.