Millennials are getting serious about money, and employers and financial-services companies are responding with products and services that allow them to easily save more. Nevertheless, millennial households have just $31,000 in median savings, according to Transamerica, and roughly 25% of millennials have saved less than $1,000. Clearly, millennials have some work to do if they hope to retire with a million dollars or more. But these three money-savvy tips can help you become a millionaire millennial.

No. 1: Say yes

Increasingly, employers are automatically enrolling workers in employer-sponsored retirement plans, and that means millennials are saving earlier in their career than previous generations have. Thanks in part to auto-enrollment, the median age that a millennial begins saving at is 22, and that's roughly six years sooner than Generation Xers and 13 years sooner than baby boomers.

A happy millennial man raising his fists in celebration.


Not every millennial, however, is working for a company that offers auto-enrollment, and in those cases, the onus is on them to opt into the plan. Although it can be tempting to hold off on retirement saving to boost the monthly budget, saying yes to a 401(k) or 403(b) plan when you're young can pay off big because of compound interest.

For example, a baby boomer investing $6,000 per year in a 401(k) beginning at age 35 would wind up with $434,349 in retirement savings at age 65, if earning a compounded 6% interest annually. However, a millennial who begins saving $6,000 per year at age 22 would wind up with $1,125,045 at age 65. Because of compound interest, the millennial retires a millionaire worth more than twice as much money as the baby boomer.

No. 2: Make it automatic

In addition to auto-enrollment, employers are including auto-escalation features that take the headache out of contributing more to retirement plans every year.

Historically, employees are enrolled in retirement plans at a default contribution rate that's typically 3% of income. However, contributing 3% of income isn't likely to result in a million-dollar portfolio. To reach a million dollars, millennials are going to need to invest considerably more than that. And there's perhaps no simpler route to becoming a millionaire than auto-escalation.

Auto-escalation allows workers to increase their contribution by a specific percentage every year, and increasing contributions by only 1% annually to a cap of 15% can produce envy-inspiring results. For instance, let's assume Jeff begins investing 3% of his $45,000 income beginning at age 22. If he automatically increases his contribution rate by 1% per year to a cap of 15%, and he averages a 2% raise in his income annually, then he'd end up with a portfolio worth nearly $1.4 million at age 65, assuming a 6% annual compounded interest rate.

If Jeff increases his contribution rate by 2% annually to a 15% cap, then his portfolio would grow to $1.55 billion at age 65. Still not enough? If he increases his contribution rate annually by 2% and caps his contribution rate at 20%, then he'd wind up with nearly $2 million at age 65.

Money flying out of a millennial man's wallet.


No. 3: Change your relationship with debt

Using debt to leverage investments can increase your net worth. However, using debt to buy depreciating assets is a surefire way to hamstring efforts to become a millionaire. Yet most people, including millennials, embrace the latter rather than the former, and as a result, they enrich banks and other lenders, rather than themselves. 

In the famous book The Millionaire Next Door, author Thomas Stanley researched millionaires to find out how they became rich. He discovered that millionaires are often the people you wouldn't suspect. He wrote: "Many people who live in expensive homes and drive luxury cars do not actually have much wealth. Then, we discovered something even odder: Many people who have a great deal of wealth do not even live in upscale neighborhoods." 

If this doesn't make sense to you, try thinking about it this way: Every dollar spent on a depreciating asset is not only a dollar spent, but a dollar that can't be saved. Therefore, if you spend $300 per month on a car payment, the real cost isn't $300, but $600, plus the compound interest that could be earned on the $300 if it had been invested, rather than spent. Include the impact of interest paid on loans and credit cards, and the drag on wealth becomes even bigger.

Ultimately, most millionaires don't buy fancy things. Instead, they spend less than they could and save more than they need to. If you master this strategy, then you're well on your way to becoming a millionaire.