How to backup?

Yep — provided, obviously, that you keep everything in there. Some people save files to the root of their drives, which makes trouble!

One thing to remember when you put everything back is that you must put the contents of the folders (Documents, Music, Pictures, etc) into the new ones, and not replace the existing main folder with the old one; so for instance, you don't replace the old Music folder, just drag the iTunes folder and anything else inside your old Music folder into the new one. The user directory puts special permissions on the main folders, and replacing them with folders you dragged and dropped in will overwrite them as normal folders and possibly cause problems for you. Just worth remembering that.