While saving your money makes your savings account look good, you actually make our better if you pour that savings into debt reduction. The reasoning is very simple, if you are saving money and you have debt, you are actually paying out to save your money.

Understand that debts - not just credit card debts, mortgages too - generally have a higher interest rate than your savings account. So if your money is sitting in your savings account and making 4% interest and you have a mortgage where you are paying 5% interest, you are paying out 1% more interest on your money.

Circumstances Where Savings Is Needed

1. One place you'll need to save is in your emergency fund. This should be in your savings ready to be used if you have an emergency - like home or car repair.
2. Some loans do not allow you to pay in a little more at a time. The only way to pay off is to save the total amount and then pay it. By all means, save the money to do this.
3. Saving to obtain and item that will save you money or is an investment, like a home. If you are looking for a home, you'll need to save for closing costs and the down payment. Although you'll want to save the bare minimum and use the rest to pay down your debt load. And purchasing things that will save you money is worth saving for. I am currently looking to get a better furnace for my home, it will take me three months to save for it, but it will save me hundreds of dollars in the winters to come.

What you need to ask yourself when you have a lump sum of money is where will it work hardest for you? Think it through, answer the question and then put your money there.