Updating your phone by downloading the update over WiFi and installing will not cause you to lose any data.
Contacts are automatically backed up to your email accounts anyway, and there is no risk of losing them.
Personally, before updating I always back up photos and music etc to my computer. However, after doing the amber and black updates on 2 phones each, I have not lost any data. So don't worry.
If you plan to flash the phone with a rom from NSU or if the Nokia store is going the flash the phone for you, then you will lose your photos etc. In that case, back up the pictures, music, app list, text messages etc before you flash the phone. Contacts are automatically backed up, as I said, and once you enter your email address/es, the contacts will be downloaded.