Note: Works here does not refer to keeping the old testament laws, but the royal command of Love for God and Love for others as yourself. I.e Practicing Holiness just as He is Holy.

Therefore, my beloved, as you have always obeyed, so now, not only as in my presence but much more in my absence, work out your own salvation with fear and trembling, for it is God who works in you, both to will and to work for his good pleasure. (Philippians 2:12-13).

The same man who wrote the verses above also wrote, “by grace you have been saved through faith. . . it is the gift of God, not a result of works.”(Eph 2:8-9)

So why do we need to work out our salvation when works do not save us?

Because though we are saved by God’s unconditional electing grace(Eph 1:4;2:5) through the gift of faith, the works we do prove that our faith is real. (James 2:18) Works are evidence of election.

That’s why on one hand Jesus says, “No one can come to me unless the Father. . . draws him”(John 6:44) (election), and on the other hand he says, “If you love me, you will keep my commandments(John 14:15) (evidence of election). He ties both together when he says, “My sheep hear my voice (election) and I know them, and they follow me”(John 10:27) (evidence).

Why God ordered it this way is seen in some of Jesus’ parables. He says that when the gospel net is cast into the sea of the world, it “gather[s] fish of every kind,”(Mt 13:47) some righteous and some evil. The visible church is always a mixed catch, or always has weeds among the wheat,(Mt 13:24-30) or always has goats among the sheep.(Mt 25:31-46) What distinguishes the elect from others is that their God-given faith is demonstrated by their God-dependent works.(James 2:14-26) Faith works through love.(Gal 5:6)

Words are cheap. Jesus said, “Not everyone who says to me, ‘Lord, Lord,’ will enter the kingdom of heaven, but the one who does the will of my Father who is in heaven.”(Mt 7:21)

Our works are not decisive in our salvation. They are evidence of God’s saving work in us. And that is why we must “be all the more diligent to make [our] calling and election sure” (2Pt 1:10) by working out our own salvation with fear and trembling.


Source: http://www.desiringgod.org/articles/why-must-we-work-out-our-salvation

Bolded words at the top are mine.