hatshatshats on "Updating Wordpress"

Hi all
I am currently running Wordpress version 3.4.2.
I was wanting to use a plugin but realised I required a later version of Wordpress.
I'm tempted to update but quite nervous about it as I don't want to lose anything. I've made custom edits to the theme etc and don't want anything broken... the site isn't broken to begin with but I guess may have to update one day - just wanting to know if I update, what could break?
And if I did update, any way of reverting if errors occurred?
My site is http://www.thinkinghats.net.au
Many thanks in advance.