Well, it’s best to store your contacts on Google rather than the phone.
That way if you lose your phone, have to replace it, or upgrade, you
won’t lose your contacts. However, if your contacts are stored on the
phone, and not Google, you can back them up with Titanium Backup.

SMS messages aren’t synced with Google, so if you wipe your phone you
lose them, unless you back them up.

Purchased apps can always be reinstalled via the Market and are
independent of the phone you are using.

If you root your phone, or switch ROMs, you will lose everything on the
phone – so backups are very important. (Not data on the SD card, like
pictures, MP3s, etc.)