When researching the internet for advice on personal finances, you will find advice from many people to "pay yourself first". This advice aims to support you in the process to accumulate enough capital to invest on assets. When you get paid you are meant to put away a certain percentage of your income, usually around 10%, for investment purposes.
In principal there is nothing wrong with this, nevertheless I believe that you need to evaluate your circumstances and your objectives before putting money away in a savings account.
Consider the following scenario: You have managed to get an extra $2000 when working overtime. Your cash flow is very tight and you sometimes need to either use your credit to cover day to day expenses. This has led to the accumulation of $10,000 in credit card debt over a significant period of time. You can only afford to pay the minimum payment and this situation continuously stresses you.
The question is, should you put the $2000 away in a savings account earning you 4% per annum or should you use the money to reduce your credit card debt?
If you put the money away at 4% per annum, you will get a total interest of $80.
The other option is to reduce your credit card debt. You pay 11% interest on your credit card balance. This means that at the end of the year, the $2000 will cost you $220 in interest. Therefore if you use the money to reduce your debt you will be saving $140 in one year. Therefore it makes more sense for you to pay the credit card debt than to save the money.
The difference may not be much, but in this case the longer you have the debt, the more interest you pay. This is the magic of compounding interest. In our example, the compounding interest in working against you.
You should always evaluate your options to make decisions on savings versus paying off debt or purchasing assets.