Jim Cramer has decided to take a step back, and go back to basics this week to cover the most important aspects of investing. After all, this isn't an education that you learn in school, so it has to come from Cramer. To begin, you must save enough cash to create a discretionary and retirement account.

Now what the heck do you do?

Cramer believes that a diversified portfolio of five to 10 individual stocks is the best way to maintain a portfolio.

"Now, before you start picking stocks, you need to forget everything you've ever heard about that classic piece of so-called investing wisdom, buy and hold. We don't buy and hold here on 'Mad Money'—it's a great way to lose your shirt," Cramer said.

That means you need to practice the buy and homework mentality.  

To start to pick individual stocks, you need to read the company's SEC filings. The most important ones are the annual report, known as the 10-K, and the latest quarterly report, called the 10-Q.

The earnings release will most likely make or break Cramer's investments; it is that important. He also recommended listening to the company's quarterly conference calls, or reading the transcripts, to gain further insight directly from company executives.

"There is no better source of information than these calls," added the "Mad Money" host.

It all comes down to doing your research. Additionally, check out the company's sector and try to figure out of this is a good time in the business cycle to own the stock. Then compare it to the competition.

However to have a meaningful and diversified portfolio, Cramer said that you need to start with $10,000.

But what if you don't have $10,000 or want to put the time into doing the homework? Don't worry, Cramer has you covered.

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In that circumstance, Cramer recommends that you invest into an index fund. Specifically, a cheap index fund with low fees that mirrors the S&P 500. Cramer's fave is the Vanguard 500 index fund.

Just keep in mind that if you invest in an index fund, you will never beat the market, because the point is that an index fund is the market.  

That means your performance returns will also mirror the market, which is why Cramer always prefers picking your own stocks.  

Whether you choose to pick your own stocks or to invest in an index fund, the first step is to know your options and do your research. By taking a step in investing, the goal is to remove the shackles of living paycheck to paycheck, so you can lay back and watch the dough pile up with peace of mind.

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