I’ve never tried, so I don’t know. But the files are definitely there, so I would think you could copy the user folder over and you’d be 99% of the way there.
Although if you had a couple of external hard drives you could alternate back and forth. That would make you less susceptible to single-drive failure but still give you historical versions of things.
Leaving me with just 99% of the way left to go 
Do you mean we can’t create a bootable disk with M1?
To quote Malcolm In The Middle, “Yes. No. Maybe. I don’t know. Could you repeat the question?” 
My original post was talking about making DMGs and sparsebundles. For all practical purposes, you can never boot from those, M1 or not. You’d have to have macOS loaded to mount the disk image, at which point you can recover any/all files. The main benefit of this route is that you can copy your image from drive to drive the same way you copy a file, put other stuff on the drive, etc.
A bootable clone, on the other hand, is an actual drive that you’ve dedicated to being an exact duplicate of your internal drive with the intention of booting from it.
The question with the M1 is whether making a bootable clone is even possible.
Initially the answer seemed to be “no”. It looks like there might be some movement on that front with later versions of Big Sur, as places like OWC are giving directions for doing so:
But given that this is Apple, as far as I’m aware there’s no officially supported set of directions, or even a declaration of intent that they intend for this to work. So if you’re building a backup strategy around a guarantee that you’ll have a bootable external drive, I would say that’s a very, very risky move as the ability to boot from the external drive could be removed in a future version of macOS, or a security fix for Big Sur.
All that being said, if you make a bootable clone and can’t get it to boot, the bootable clone will still have all of your files. So it’s not a complete loss. Just be aware, and test whatever setup you’re planning to do before disaster strikes. 
And then you just have to go the final 99% after that to finally be done. 
I believe, at the moment, it is possible to make a bootable clone on the M1, but apparently one cannot actually boot from that drive if the M1’s internal drive is dead. This whole area is in a state of flux, and it’s my impression that almost nobody knows will happen next.
At the extreme end of the spectrum I do:
Real backups:
Overkill and that’s fine.
Cheers
Mark