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2. I download the latest backup regularly (once a week on average, sometimes more). If the entire server decides to crap out we wouldn't lose months worth of work.
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How big is the backup file? If it isn't too crazy, set up a server script to automatically email the file to a Gmail account, then set up a Gmail filter to tag and archive the emails. That's what I do with my blog and it means that I never have to worry about not having access to the most recent backup.