5 Stocks Tips From Jim Cramer Actually Worth Living By

When Jim Cramer gives financial advice, investors tend to listen.

While his stock picks could use some work, his money management advice is usually spot on.

In fact, one of his best pieces of advice is to avoid every market gyration.

“You don’t need to be perfect at managing your money, you just need to be good enough, and that means you shouldn’t waste your time trying to anticipate every little gyration in the market,” he said, as quoted by CNBC. “Take a page from Jimmy Chill and relax.”

Here are five other Jim Cramer tips that are worth living by.

No. 1 – Start investing early.

The younger you can start investing, the better.

According to Cramer, this is really the only way you’re going to achieve financial freedom.

Look at the inflation-adjusted returns of the S&P 500, for example. Its 20-year average is about 5.7%. Essentially that means investing money into the market has beaten inflation by 5.7% over the last two decades. Plus, by starting early, you can take full advantage of compound interest.

As noted by Fortune.com, “Let’s say you had $5,000 in a savings account that earns 5% in annual interest. In year one, you’d earn $250, giving you a new balance of $5,250. In year two, you would earn 5% or $262.50 on the larger balance of $5,250, giving you a new balance of $5,512.50.” 

“Thanks to the magic of compound interest, the growth of your savings account balance would accelerate over time as you earn interest on increasingly larger balances. If you left the initial principal of $5,000 in the savings account for 30 years, earning a 5% annual interest rate the whole time and never adding another penny, you’d end up with a balance of $21,609.71.”

No. 2 – Have a clear plan of action. 

Know what you’re buying before you buy it. Create an exit strategy that involves setting clear goals, your maximum risk tolerance, and what kind of returns you’re looking for.

Define your objectives. Set a timeline on how long you plan to hold a stock; Determine your investing budget, which includes knowing how much you can afford to invest. Diversify your portfolio, and assess your comfort level before you buy. You also want to know exactly what you’re buying before you buy it, both fundamentally and technically.

No. 3 – Don’t Get Greedy.

“Bulls make money. Bears make money. But pigs get slaughtered,” says Jim Cramer

The lesson from that is to stop yourself from getting greedy in the markets. Take your profits when your plan of action tells you to instead of holding out for more.

No. 4 – Pay off credit card debt first.

Like most financial advisors, Jim Cramer believes you should pay off your credit card debt.

According to Dave Ramsey, if you’re struggling with debt, focus on the smaller balances first. That way, you free up even more cash for the heavier debt.

Then, once the smaller debts are paid off, you now have new cash flow to tackle to make extra payments on higher interest balances. As noted by Ramsey Solutions, “Make minimum payments on all debts except the smallest—throwing as much money as you can at that one. Once that debt is gone, take its payment and apply it to the next smallest debt (while continuing to make minimum payments on your other debts).”

Then, repeat that over and over again until you drive down your overall debt.

Or, you could make just minimum payments on all of your debt and put a chunk into the expense with the most interest. Or three, you could take out a consolidation loan, wipe out all of the outstanding debt, and have one balance. Not only could this allow you to manage your debt a bit better, but it may also allow you to put extra funds into an emergency account.

No. 6 – Don’t waste your money.

We all tend to waste money on frivolous things.

But when you spend more than you save, you’re robbing yourself of savings and a potentially secure retirement down the road.

Finance coach Suze Orman says your coffee habit is costing you at least $1 million. Consider this.  Right now, the average cup of coffee can cost about $7. If you got coffee once or twice a week, it’s not too bad. But if you’re doing it every day – which many of us do- it’s costing you $210 a month, and $2,520 a year.

While $2,520 may not sound like a lot, if done over 40 years it’s $100,800 for coffee.

Instead, according to Suze Orman, “$100 a month in a Roth IRA, over 40 years is $1 million. So, you need to think about it as you are peeing $1 million down the drain after you are drinking that coffee. If you just simply used your money to purchase needs versus wants, you would find the money to invest in your retirement account.”

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