If you've read the latest headlines, you know millennials get a mixed financial rap. Some reports say they're throwing their money away on avocado toast and dining out, while others claim they're killing the earnings of restaurant chains by cooking at home more.
Whatever you believe about their financial habits, some millennials at least are sitting on six-figure retirement accounts. In a Fidelity Investments analysis of 59,000 millennials in the United States — those born between 1981 and 1997 — who have participated in their company's 401(k) plan, America's pension scheme, for 10 years, the average balance was $109,400 at the end of June 2017.
This isn't thanks to rich parents. These savers can't all work in investment banking. And odds are that at least some have student loan balances. Rather, the common thread - and the secret to a wealthy reitrement - is consistency.
And there's a reason why they are being consistent. According to a report released earlier this year by Bank of America's online discount brokerage, Merrill Ledge, millennials are the first generation to plan long-term for financial freedom over retirement.
The majority, at 63 per cent, are looking to save a set amount of money or income necessary to enjoy their desired lifestyle, compared to 55 per cent of Gen Xers and baby boomers who are saving so they can leave the workforce.
This younger generation also have a different outlook on traditional lifetime milestones. When asked about their top life priorities in life, today’s 18-to-34-year-olds are more likely than their older counterparts to focus on personal milestones such as working their dream job (42 per cent versus to 23 per cent) and travelling (37 per cent versus to 21 per cent).
So what is the best way for millennials to achieve those goals along with their ideal of financial independence in the future?
Regular contributions add up
If you steadily save a reasonable portion of your income over a long period of time, you're going to end up with a pile of money.
"Saving slowly and methodically while keeping expenses low will generally get you where you need to go," says Timothy LaPean, a certified financial planner in Minneapolis. "You don't need to shoot for the sky. All you need is a long series of incremental wins."
The millennials in Fidelity's analysis aren't super savers. Less than a third have a total savings rate - which includes their contributions, plus company matching dollars - of 15 per cent of their income or more.
Financial planners commonly use that 15 per cent figure as a retirement savings goal. That means more than two-thirds of these millennials aren't saving "enough" by most standards - or even close to it. The average contribution rate for the group, not including an employer match, is 7.5 per cent.
And millennials also have temptations that prevent them saving. According to Merrill Ledge, their ‘fear-of-missing-out’ (FOMO) mentality is also very apparent in their spending habits. The majority say they are more likely to spend on travel, dining and fitness than save for the future.
Make it automatic
Millennial thousandaires have also been helped along by one of America's pension scheme's best features: automatic salary deferrals, in which contributions are pulled directly from their pay cheques.
"Human beings on the whole are not built to be good at saving, and the best approach is one where you never really see the money in the first place," Mr LaPean says, noting that many employers let you mimic that automation by dividing your monthly salary among two or more accounts, including an individual retirement account.
Take some help from the market
The millennials in Fidelity's analysis saw nearly a 32 per cent compound annual growth rate, the average amount the account grew each year, over the 10-year period reviewed. Fidelity says about 60 per cent of that was thanks to their own actions - those consistent contributions - and the rest due to market returns.
Those returns come from regularly investing in the market, whether through a pension scheme or other means, and then staying invested despite periods of volatility. But research has shown millennials tend to be wary of the stock market. According to a Legg Mason survey from earlier this year, 85 per cent of millennials say they're "somewhat or very conservative" when investing.
If you're not sure how to invest or how much risk you can tolerate, some companies also provide employees with retirement planning guidance. Alternatively for those in the UAE, there are a number of investment groups that you can join to find out how other residents invest, such as the UAE Bogleheads Common Sense Personal Finance and Investing group. The group is free to join with the best way to get in touch is by visit its website at http://bogleheadsuae.wixsite.com/website or search for "Common Sense Personal Finance and Investing" on Meetup and Facebook. Another option is wiseuae.com, an independent community for financial education and support.
Overspending leads to undersaving
"The first step toward saving enough for retirement is to look at your recurring expenses," Mr LaPean says. "Can they be lower? Are you spending on anything that is both nonessential and unlikely to improve your long-term joy?"
One month of too-high expenses might not make or break you; a pattern of overspending very well could. High expenses, Mr LaPean notes, make it harder to save and drive up the amount of money you need to save, because you'll likely want to maintain that standard of living in retirement. Keeping costs down means you'll need less money for retirement and your budget will have some breathing room to meet your goals.