The old cliché goes that ‘money can’t buy you happiness,’ but how true is that statement?

According to a recent survey by Ameriprise Financial, only 13 per cent of American millionaires classified themselves as wealthy. Even those who had over $5 million (£3.8 million) spread across their accounts, investments and funds said that they didn’t feel like they were rich.

Elizabeth Dunn, psychology professor at the University of British Columbia, said that this could be due to ‘social comparison’, meaning that a person only feels rich if he is richer than the people he is comparing himself with. A 2005 case study in Germany compared people who were similar in terms of age, education and region of residence, finding that “individuals are happier the larger their income is in comparison with the income of the reference group.”

Another more recent study in America found that those with middle-incomes were less satisfied financially if they lived in a place with higher levels of income inequality. Interestingly, research in Canada found that neighbours of lottery winners were likely to run up debts and to go bankrupt.

But what should you make of all this? 

Elizabeth Dunn commented that people tend to overrate the importance of earnings when it comes to feeling financially satisfied. “All of this talk about ‘income, income, income’ overlooks the fact that it matters a lot what you do with your money.” Spending money in certain ways, for example on memorable experiences rather than possessions, can make people feel better.

Maggie Germano, a financial coach in the States, notes that “people who feel the best about their financial situation […] are people who are fully aware of what their financial situation is.” She explains how she has clients who get a surprise when they realise how much they are spending on online shopping and Uber rides. “I do think it is less about how much is actually coming in and more about how they’re consciously using the money,” she emphasises.

Another financial coach, Michelle Tascoe, mentioned how setting specific goals can help to give you financial peace of mind and cause you to have a more positive outlook on your finances. Rather than just saying, ‘I want to retire early,’  a more focused goal, such as, ‘I want to retire by the time I’m 55’ will help you plan more effectively.

From the experiences outlined, it’s been shown that taking the time to work out what you want your money to achieve will give you a greater sense of clarity. You can measure your progress against a defined plan and improve your emotional and financial wellbeing for the future.