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Jim Cramer's Best Plays in the Playbook: What to Do Before Investing, 401(k) Strategy

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NEW YORK (TheStreet) -- Are you looking to become a better investor? Jim Cramer's new segment on his Mad Money show called "Cramer's Playbook" might be just what you're seeking. Today we look back at two recent episodes of the playbook.

These are excerpts from Cramer's 'Mad Money' Recap, originally published on Jan. 11 and Jan. 23, 2014.

Who Should Invest In Stocks?

In his weekly series entitled "Cramer's Playbook," Cramer wants to reverse the trend of failing to teach financial literacy in America. Today's lesson: Who should be investing in the stock market?

Cramer reiterated that he's a huge fan of the stock market for wealth creation, but that doesn't mean stocks are for everyone. He said there are two important prerequisites that all investors must have before they invest because it's pointless to invest in stocks without a solid financial foundation.

So what are the two "must-haves" before you invest in stocks?

Cramer said the first is paying off all your high interest debt, such as credit cards. With average interest hovering around 15%, Cramer said credit cards will gobble up your money a lot faster than the markets' ability to replace it. Having low-interest debt, such as student loans and mortgages, is OK, but your credit cards and other high-interest debt may be paid in full.

Cramer's next must-have before investing in stocks: health insurance. He said that far too many people end up in financial ruin after unexpected medical bills ravage their lives. With Obamacare, there's no excuse not to have health insurance, Cramer said, and it's something everyone needs before they dive into stocks.

Should I Invest In A 401(k) Plan?

For the next installment of "Cramer's Playbook," Cramer's series that hopes to increase everyone's financial literacy, Cramer turned the focus to company-sponsored 401(k) plans, answering the question, "Should I invest in my company's 401(k) plan or put my money to work elsewhere?"

There are many advantages, and disadvantages, to 401(k) plans, Cramer explained. 401(k)s grow tax-deferred and many employers offer a match, which is free money. Using the power of compounding, if you invested $5,000 a year starting at age 30, by the time you turned 60 your $150,000 next egg would have grown to over $511,000 given just a 7% annual return, Cramer explained.

But 401(k) investment options vary widely from employer to employer and many offer high or hidden fees that over time can put a serious dent into your returns. That's why Cramer advocates investing in a 401(k) only up to the employer match and only if the investment choices are acceptable. If not, invest in a self-directed individual IRA, where you're allowed to invest $5,500 per year, Cramer said.

To watch replays of Cramer's video segments, visit the Mad Money page on CNBC.

To sign up for Jim Cramer's free Booyah! newsletter with all of his latest articles and videos please click here.

-- Written by Scott Rutt in Washington, D.C.

To email Scott about this article, click here: Scott Rutt

Follow Scott on Twitter @ScottRutt or get updates on Facebook, ScottRuttDC

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