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Cramer’s 3 things you must have in place before you invest

Cramer’s 3 things you must have in place before you invest

Owning stocks can provide serious earning potential, but Jim Cramer considers it just one piece of the investment puzzle.

"There are some people, call them the 1 percent if you will, who can make enough money from their ordinary day-to-day income to become truly rich. But for the vast majority of Americans, that paycheck is simply not enough," the "Mad Money" host said.

The key to capital preservation is knowing the importance of saving money and preventing loss. Without this, don't even think about investing in stocks, he said.

"You can make a fortune in the market, but if you're hemorrhaging money everywhere else, than a healthy portfolio isn't going to do you much good," Cramer said.

The three keys to success in capital preservation are paying off credit-card debt, having health insurance and getting disability insurance. Without these things crossed off the list, investing just doesn't make sense.

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These points are simple in theory, but the execution can be difficult.

Cramer said to keep this in mind: If you have credit-card debt, you are paying extremely high interest rates on that debt, and that is just not going to create wealth in the long run. So, pay down the debt while avoiding extreme measures such as cutting up or throwing the cards out.

Without health insurance, just a couple of hospital visits can wipe out your bank account. Everyone will visit a hospital eventually, so make sure you are insured.

"You should not invest a penny in the market before you have health insurance. You might think that the Affordable Care Act makes this a non-issue. But you now either have to buy health insurance or you pay a fine and still have no health care insurance," said Cramer.

Granted, the fine may be minimal. But, ultimately, it is still cheaper to buy insurance before you get sick.

The last thing on your list needed before investing in stocks is disability insurance.

The rationale of having health insurance applies to disability insurance. All of your precious gains racked up in the stock market can be wiped out because you will have to spend money to support yourself while unemployed and injured.

So, if you think you can afford to own stocks, seriously consider Cramer's prerequisites. Capital preservation can ensure that the wealth you build will flourish at a sustainable pace, and will last for the long term.

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