Hi, the contacts will be synced when you connect the phone to a computer be it Windows or Mac, or whatever contacts manager you are using (Outlook, Gmail). Syncing means the data you have on your phone is the same with the one on the computer, so your missing contacts might be the bad sync, not the backup causing problems.
You can find your backup containing contacts, sms, photos and other data of the iPhone is stored on a default location on your computer. Under OS X, iTunes will store backups in /Users/USERNAME/Library/Application Support/MobileSync/Backup. Under Windows XP, for example, iTunes will store backups in \Documents and Settings\USERNAME\Application Data\Apple Computer\MobileSync\Backup. Here's a blog with backup locations that should help.
Backing up the phone regularly with iTunes is a good idea to keep from losing data, it will mean all your contacts and data should be there and can be restored in case you need it. If you want to be extra safe, you can make a copy of the backup and store is somewhere safe before any update, as iTunes tends to corrupt backups sometimes.
Edited by livy86, 27 February 2013 - 07:28 AM.