Proper backup procedure for upgrading to OS X Mountain Lion
Here are the things you'll want in case things don't go well with the install over your internal drive with your apps, settings and files:


An external USB drive with a Recovery HD (4 GB is plenty for this)
Time (Downloads could be slow and error prone today)


Dive in is my advice given your recent hardware, speed of the machine and storage and the framing of your question (you've asked the right details to be aware of the potential downsides).

Do try booting to the recovery USB drive once and see that it shows your Time Machine drive as a valid place to restore Lion. I have had people find one USB port was dead when they tried to use both - I know this is paranoid, but update time is when most people find out about issues (software corruption and hardware problems) since it changes things at a very low level. Machines can be infirm enough to keep running and fail when faced with a re-install or migration of data that a major OS upgrade entails.



If you were paranoid, you could also add another external drive with 20GB free to your list of things needed. Just installing a clean version of Mountain Lion is always safer than installing onto a system with data and settings. By migrating the contents over to be sure all your third party apps are ready for the new OS. This is a nice alternative to making a bootable backup.

Re-doing the installer a few days later on your internal drive is easy work (or using Disk Utility to erase the internal drive and "restore" the external image to the internal drive doesn't take that long for Air sized images.