People who feel the disconnect between a significant net worth on paper and a struggle with day-to-day financial security may be experiencing “phantom wealth.” Here’s what you need to know about it.

What Is “Phantom Wealth”?

Phantom wealth is based on the disconnect between assets and how much money is accessible. This often occurs when a significant portion of your net worth is tied up in assets like retirement accounts, real estate, or long-term investments. While these assets are valuable, they can’t easily be used for daily expenses or emergencies.

How It Can Create a False Sense of Security

The perception of wealth can lead people to overspend, under-save, or underestimate the importance of cash flow management, believing that their assets will always be there to bail them out of a financial mistake. This may cause stress due to the constant worry about money, even when someone may feel financially well-off.

Who May Be Most Affected?

Phantom wealth primarily affects people in a few specific financial situations. Younger generations often have a significant portion of their wealth tied up in retirement accounts while also experiencing a cash flow squeeze due to student loan debt, rising housing costs, and stagnant wages. People with significant illiquid assets, such as homeowners with substantial equity or business owners, find accessing those funds complex and costly. High fixed payments, such as large mortgage payments and car loans, can strain cash flow, allowing unexpected expenses to derail their financial stability with little room for error.

Why You Might Be Better Off Than You Think

Even with the challenges, phantom wealth can indicate a potential for long-term financial security based on these assets, which may appreciate significantly over time. As people approach retirement, they gain access to their retirement funds and can leverage their home equity for flexibility. A large net worth may allow you to leverage business opportunities or other significant purchases.

Turning Phantom Wealth Into Financial Strength

Building substantial assets requires discipline, a long-term perspective, and financial planning skills. By balancing strategic planning with meeting your short-term financial needs, you can continue to build wealth without feeling financial strain.

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