If you upgrade to 98 from within Windows 95 you shouldn't lose your files but don't rely on that, you should always keep your files backed up to another drive or to optical discs as a matter of good sense all the time. Consider this: when your hard drive eventually fails (and it will do one day) you will lose everything that's on it unless you can afford to pay for professional data recovery.
I suggest you upgrade to Windows 98 SE. Don't go for Windows ME as it was a terrible rush-job, very buggy and just not fit for purpose - - even Microsoft regrets releasing it.