Even though we have work to do, we are still saved by grace. The interpretive proof of our reliance on grace is found in these two verses: 2 Nephi 25:23–24. Verse 23 ends with the statement that "we are saved [by grace], after all we can do." This is followed with verse 24, which begins with "notwithstanding [even though we are saved by grace] we believe in Christ, we keep the law of Moses, and look forward with steadfastness unto Christ, until the law shall be fulfilled." All of us, every one of us, must rely on grace—the Atonement, the Resurrection, and the sustaining influence of Jesus Christ—in order to be made perfect. Then, through our faith we are made alive in Christ because we are willing to do what he has commanded. We still keep the commandments—that is part of all we can do.
Elder Dallin H. Oaks referenced 2 Nephi 25:23 and the principle of grace, when he made the following comment in his April 1998 General Conference address entitled, "Have You Been Saved":
Some Christians accuse Latter-day Saints … of denying the grace of God through claiming they can earn their own salvation. We answer this accusation with the words of two Book of Mormon prophets. Nephi taught, "For we labor diligently … to persuade our children … to believe in Christ, and to be reconciled to God; for we know that it is by grace that we are saved, after all we can do."
One of the footnotes in verse 23 points to D&C 138:4, which says, "That through his atonement, and by obedience to the principles of the gospel, mankind might be saved." This verse undoubtedly implies that we must also be obedient to ordinances as well as principles, because participating in ordinances are things that we have to do to be exalted. We should also look at being saved in the context of a covenant life.
These verses explain that grace is not simply the means by which we are saved—it is the principle that we live and the salvation that Christ brings. In other words, when we have been saved by grace, we live in grace. This also means that we live in love because grace is unconditional love, manifested through the giving of gifts.
The Greek word for "grace" does not describe a tangible gift you may receive. In the ancient world of Jesus and Paul, "grace" established a relationship because when you accept a gift from someone, you are then obliged, and you are then a part of a relationship with the person who gave the gift. I have a friend who is writing a book entitled, "His Obliging Grace." It is "amazing grace," but it is also "obliging grace" because we are obliged and welcome to live in that relationship.
Dallin H. Oaks, "Have You Been Saved," Ensign, April 1998, online at churchofjesuschrist.org.