Hello!

Edit: This is for Skyrim. I apologize for not mentioning that sooner.

When you level up you instantly refill health, magicka, and stamina. You should save levelling up for when you are about to die. You don't have to spend talent points, but you do need to choose which stat to increase.

TIp: play in survival mode. That way you'll be requried to use potions/magic/food/rest to heal and don't need to worry about saving levels. Levelups are only claimed after sleep.