More than one way to skin a cat
The free backup program called Easeus ToDo (available from CNET Downloads page) will walk you through the steps for creating a "Backup Image" of your entire setup. Another good program is Acronis True Image for around $30 in stores or online from www.newegg.com and others.
However, as another poster here already said, it can be argued that the best method is to use Windows 7 built-in Backup and Restore program. In its simplest form the program has a couple of quirks, but it will make an exact copy of your entire Windows, documents, photos, music, etc. and there is very little effort involved on your part.
Now, about those quirks. I will describe them. Your computer stores everything (including Windows 7) on a device called a hard drive. The capacity of a hard drive is measured in GigaBytes (GB, for short) and TeraBytes (TB for short). A typical computer may have, for example, a 500GB hard drive (or maybe even a 1000GB which equals 1TB). Windows plus all your "data" (documents, photos, video, music, etc.) might take up, say, 200GB total space. That leaves 300GB of unused space. So far, so good.
A requirement for using Windows 7 Backup and Restore is that you have another hard drive of sufficient capacity to hold the Backup Image/copy/clone that you want to make. This is where a Windows quirk comes in. The Backup and Restore program sees your 500GB hard drive and requires you to provide another hard drive with at least 500GB of space on it even though all your stuff only takes up 200GB of space on your main hard drive! What you really want is to make a backup that only needs 200GB of space, you see?
There is, of course, a way around that quirk. If you use that Acronis program or Easeus ToDo I think they may just require 200GB on the spare hard drive to hold the Backup copy.
With Windows 7 you can do a few extra steps before starting the Backup and Restore program to accomplish the same thing. Basically, you tell Windows 7 to shrink the 500GB "partition" that Windows occupies down to a smaller size, just a bit larger than the the stuff you want to copy, say 202GB or so. Then, Backup and Restore will only require the spare hard drive to accomodate 202GB for the Backup copy, thus saving almost 300GB of space on the spare drive for your next Backup or for other data.
To do this:
Click on Start
Right-click on Computer and select Manage. A new window opens.
On the left side of new window click on Disk Management and wait for the chart to open.
Right-click on your main hard drive (usually labeled C: drive) and select Shrink Volume. A new window opens
Here it will tell you how much you can shrink the size of your C: drive partition. Choose any number up to that available maximum and proceed.
When it's done you have shrunk the 500GB C: drive down to a smaller size.
Now, close all the windows.
Click on Start and type Backup and Restore and select that same result in the list above where you typed.
The Backup and Restore window opens
On the left side menu click on Create a System Image
Follow the instructions, selecting the spare hard drive as the "target" location where you want to save/store the Backup "System Image".
When it has finished you should use the Create a System Repair Disk option in the Backup and Restore program. If Windows ever totally crashes or won't boot up you can use the Repair Disk you created to boot up the computer and Restore the System Image (the Backup copy) from the spare hard drive, no problem.)
Good luck !!