diff --git a/setup/cli/commands/backup.py b/setup/cli/commands/backup.py
index f1c8f1a..b89b418 100644
--- a/setup/cli/commands/backup.py
+++ b/setup/cli/commands/backup.py
@@ -309,13 +309,18 @@ def create_backup(args: argparse.Namespace) -> bool:
                 tar.add(temp_file.name, arcname="backup_metadata.json")
                 Path(temp_file.name).unlink()  # Clean up temp file
             
-            # Add installation directory contents
+            # Add installation directory contents (excluding backups and local dirs)
             files_added = 0
             for item in args.install_dir.rglob("*"):
                 if item.is_file() and item != backup_file:
                     try:
                         # Create relative path for archive
                         rel_path = item.relative_to(args.install_dir)
+                        
+                        # Skip files in excluded directories
+                        if rel_path.parts and rel_path.parts[0] in ["backups", "local"]:
+                            continue
+                            
                         tar.add(item, arcname=str(rel_path))
                         files_added += 1
                         
diff --git a/setup/core/installer.py b/setup/core/installer.py
index 6dcceda..546f311 100644
--- a/setup/core/installer.py
+++ b/setup/core/installer.py
@@ -156,9 +156,9 @@ class Installer:
             # Ensure temp backup directory exists
             temp_backup.mkdir(parents=True, exist_ok=True)
 
-            # Copy all files except backups directory
+            # Copy all files except backups and local directories
             for item in self.install_dir.iterdir():
-                if item.name != "backups":
+                if item.name not in ["backups", "local"]:
                     try:
                         if item.is_file():
                             shutil.copy2(item, temp_backup / item.name)