Mad Money

Cramer: How to increase wealth dramatically

Cramer's Playbook: Saving for retirement

(Click for video linked to a searchable transcript of this Mad Money segment)

Most people will never grow rich from a paycheck alone. However, that doesn't mean you can't grow wealthy.

Jim Cramer is convinced that individual investors, who are willing to do the necessary research, can generate significant profits, simply by investing money strategically.

"I believe you can increase your wealth pretty dramatically by saving part of your paycheck and investing that money in stocks, as long as you invest wisely," said Cramer.

Here's how Cramer would do it.

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If possible, sift as much as 15% off your paycheck and set it aside for investment. If you can't afford 15%, set aside what you can, "making 10% a near-term target."

Cramer then recommends dividing that money between two accounts: 1) a retirement account and 2) a brokerage account.

Although the percentages vary over time, if you're at least a decade away from retirement, Cramer advocates putting no less than 50% and no more than 75% of that money into a 401(k) or IRA.

The remaining money, he says, should go into a brokerage account. "I recommend using a cheap online broker with low commissions."

"There are two reasons why you should have parallel accounts like this," Cramer said.

1. You don't want to put the lion's share of your investment money in a brokerage account because 401(k) and other retirement plans receive all sorts of special tax benefits. Not leveraging the tax advantages could cost you a considerable amount of money over time.

2. Retirement money should be invested in lower risk stocks. A brokerage account, however, allows you to set aside money for higher risk /higher reward investments, that when picked strategically, can generate significantly larger returns.

Cramer believes if you follow this regimen and save a little money religiously, even if it's a relatively small amount, and put that money in stocks, over a lifetime it will grow to become a large amount.

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"It's important to understand that, for the vast majority of people in this country, you're never going to get rich from your paycheck alone," Cramer said.

But that doesn't resign you to a life without affluence.

If you follow the plan outlined above and put a percentage of your paycheck in stocks, "you can increase your wealth pretty dramatically as long as you invest wisely."

Call Cramer: 1-800-743-CNBC

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