I do mine somewhat different, and some may think too much but:
All my backups are stored on a 1TB HD that is "hidden" from the OS.
I use Acronis as my personal choice and this method is called the Acronis Secure Zone.
If your imaging program of choice does not offer a method like this, being partition on a HD separate from the OS works fine as well.
If You have other discs, for example a drive that has Games only on it, I would not put back ups there either. It really is best to have a HD dedicated to only backups.
Internal or External.
Also, many will say putting the Image on a DVD is a bad idea. As theres a chance of failure.
They are correct. But, I still recommend Doing at least the 1st one, and 2nd one with all major software installed and activated as a secondary layer of back up.
Simply because, theres also a chance the back up drive itself can fail.
Just be sure to verify the Image itself, burn the Disc Slowly and then Verify the Burn afterwards.
I always make my 1st Image of the OS after it is installed and activated.
The only thing included, other than Windows being Activated, is of course my Imaging Software.
I then verify, and burn the image to a DVD and Verify the burn & put it away somewhere safe. I still keep this Image in stored on the Backup drive, but keep a duplicate copy on DVD just in case
I then make another Image after all my main software is installed,activated, and everything updated. This Image will also be with all my personal preferences, views etc. I burn this Image to a disc as well.
I do not Image the OS partition, but the entire OS drive as it is.
I set mine to make incremental Backups daily.
Once a week, Consolodate those into 1 file, and create a new Full back up.
I do the same method for Documents Folder (on seperate Drive)
I try to keep a weekly OS Image for the past months in this manner. (8 backups)
With the exception of the Very 1st one, and the second image which is my major software installed. These never get deleted.
I do the same for my Games Drive, and Media Drive. Only these get incrementals every other Day, Consolodated Weekly and a New Full back Up Monthly.