Money

Jim Cramer's 3 tips for investors who are just starting out

Cramer: 3 lessons for young investors
Cramer: 3 lessons for young investors   

Jim Cramer knows from being broke, but he sees no reason why you should.

"They say money can't buy happiness, but I've always found that piece of cliched conventional wisdom to be dubious at best since being broke is a major buzzkill, as I know first-hand from the time I spent living in my '78 Ford Fairmont," the "Mad Money" host said.

For younger investors who are trying to take an active hand in managing their money, the first step in achieving financial freedom is to invest. It's the only way to creating a life that isn't completely dependent on a paycheck, Cramer says.

Jim Cramer on Mad Money.
Adam Jeffery | CNBC
Jim Cramer on Mad Money.

The good news about being a young investor, is that they have time on their side. Cramer has found that too many people begin saving and investing late in life, which could limit the risk one can take. So for those looking to get involved with investing, Cramer shared three tips for young investors.

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However, there is a caveat. You must pay off credit card debt. It doesn't matter how much money you make in the stock market, that interest you are paying on a credit card will eat away at your returns and may be more than the profits you make.

Millennial businessman
Efenzi | Getty Images

Tip No. 1: Invest your savings

Cramer thinks the stock market is a great way to trick investors into saving money they might otherwise spend.

"Investing in stocks can be a lot of fun, whereas leaving money in a savings account or certificates of deposit feels really joyless for a lot of people. Not to mention the fact that their returns are so small, they're basically meaningless," he said.

Tip No. 2: Take risks if you are young
Younger investors can afford to take more risk. Think about it — if you make a mistake in your 20s, you have the rest of your life to fix it. They can afford to buy into higher risk stocks with a larger potential upside. Essentially, the closer one gets to retirement the more conservative the investing strategy should be.

"There's absolutely no reason for someone who's in their 20s to have bond exposure when that money could be invested in stocks where it will most likely end up consistently making you a higher return, year after year," Cramer added.

Tip No. 3: It's never too early to save for retirement
Start investing for retirement, especially if your job has an option for a 401(k), and contribute to a Roth IRA. It can only help in the long run!

After all, it is never too soon to start planning for the days when you can be free of the shackles of a paycheck, thanks to your investments at a young age.