Upgrade to Snow Leopard

I just got 10.6.3 from the Apple Store. I have a Macbook pro running 10.5.8. I have programs such as; Parallels Desktop, CS3, ect... that I do not have backup CD's for. I have an external HD. I want to back up everything before I upgrade.
What is the best method to upgrade considering I don't have backup CD's for the expensive (but now outdated yes!) programs? Install over the existing OS?

You can backup everything by using Time Machine (which you should be doing anyway). Make sure the external drive is formatted to HFS+ Extended Journaled in order for Time Machine to use it.

Install the Snow Leopard upgrade over Leopard. During the process you'll be asked if you have a backup. Reply yes and make sure the external with the TM backup is attached. The Snow Leopard upgrade will update all the necessary system files and use your TM backup to restore all your data, settings, apps, etc.

I don't use Time Machine. I manually send updates of important items to folders on the external HD to back-up. I guess I should start using Time Machine.