You need is to image your hard disk, using a third-party product.
The Microsoft backup utility is an option, but it is too limited in scope.
You should still use Windows to create a system repair disk and a password repair disk,
just in case, in addition to the image backup.
You need a disk-imaging product that supports boot CD or USB boot disk,
so that in case of failure you can boot from it and restore your system disk.
You should also choose a product that can do backup only of used disk sectors,
preferably with compression, so as to reduce the backup size.
The ability to restore to a different-sized disk is also useful
in case you ever change to a bigger hard disk.
These products are ususally independent of the operating system, so they will
work equally well on Windows 7 and 8.
It is a good idea to partition your hard disk into two parts :
One for the operating system and installed applications, and the second for your data.
That way you don't need to backup or restore everything every time.
In another remark: Format your partitions using Windows 7, not Windows 8,
since there are some differences in format between the two,
and their compatibility is not yet known.
A discussion of free disk imaging products can be found in this article :
Best Free Drive Imaging Program.
(I advice to also read the comments to the article.)
The article describes Macrium Reflect Free, Paragon Backup & Recovery, Clonezilla and
Drive Image XML and more. You should look look carefully at the first two.
Among commercial products, I recommend True Image by Acronis (49.95€).