Laura Rowley Money & Happiness

They've ordered trays of gourmet food, bottles of top-shelf alcohol, and a huge tent for what will clearly be a midsummer night's dream party in their manicured backyard. Eyeing their shiny, silver BMW convertible in the driveway and their new family room addition, you think, "How can they afford that? What am I doing wrong?"

Fitting In and Measuring Up

Anxiety over how our financial lives compare to others' is the subject of a recent book, "Green with Envy: Why Keeping Up with the Joneses is Keeping Us in Debt," by journalist Shira Boss. "How we fit in and how we measure up are such an integral part of our financial well-being," she says. "We construct a fantasy world around those who have more money, and glorify their lives."

Boss' personal journey into covetousness started with her next-door neighbors, John and Tina, in her New York City co-op. They seemed to enjoy an easy, charmed life. Rumor had it that they paid cash for their apartment. They spent weekends antiquing upstate, jetted off to Paris for vacations, and ordered a steady stream of luxury goods that piled up at their door.

Meanwhile, Boss and her husband had relocated back to the U.S. from the Middle East just as a recession set in, and he couldn't find work. He eventually returned to business school and they relied on her freelance writing income, all the while hiding their financial stress from family and friends.

From these experiences, Boss decided to write a book focusing on the social psychology of money -- the relationship between the household and the outside world -- and asked her neighbors if they would agree to an interview.

As it turned out, the grass was not greener on the other side: Tina, unhappy in her career, had turned to retail therapy and racked up $21,000 in credit card debt without telling John. She and her husband had both been given money by their families (something they felt they had to hide from friends), and they actually did have a mortgage.

You're Not Alone

Boss interviewed others, uncovering similarly eye-opening stories: Tammy and Dan, a working-class couple who moved into the gated community of their dreams and ended up bankrupt; congressmen who can't afford life in Washington, D.C., and sleep on cots in their offices; Tucker, a baby boomer who struggles with unfulfilled career expectations and spending habits that have left him wondering if he can ever retire; and Middy, a Palm Beach billionaire who wrestles with the way wealth distorts her relationships, among other issues.

"We convince ourselves that our problems are ours alone, and we spend so much of our time hiding our angst, which causes more stress," says Boss. "What I learned is that everybody struggles with issues around money, nobody is completely happy and comfortable -- and knowing that is a huge relief. We feel less alone."

Boss says we naturally compare ourselves to peers who are doing better, but rarely look at a homeless person on the street and thank our good fortune. That tendency has been confirmed by numerous studies. For instance, Andrew Oswald of England's Warwick University and David Blanchflower of Dartmouth College found that even if our incomes are rising, we tend to become less happy if the incomes of others are increasing more.

Off the Radar

Meanwhile, books like "The Millionaire Next Door" by Thomas Stanley and William Danko have documented the fact that many wealthy people got that way by living below their means and saving heaps of money. But, as Boss points out, no one looks at someone with a used car and modest home and says, "Wow, they must be putting a lot of money aside for their future!" As she puts it, "They're just not on our radar screen."

But more and more people on our radar screen are living the good life -- at least in a material sense -- thanks to the democratization of credit and unprecedented levels of consumer debt. This prompts increasing speculation about how they can afford it. The reality is simple: Some of them can't, at least not without going into debt. But money is the last taboo, and few people speak about it honestly.

As Boss' book unveiled the inner drama of her interviewees, I kept thinking how money can compel us to surrender our values -- and how powerfully it can distort our lives if we fail to identify those values in the first place.

Tina spends like crazy to distract herself from the painful reality that she's lost her sense of purpose, and doesn't know what she wants to do with her life. Tammy and Dan get sucked into a dangerously lavish lifestyle because they never sat down and decided what they wanted their money to accomplish -- they just earn and spend, and let the crowd dictate their priorities. Unless they keep up financial appearances, they risk being excluded by their community and social circle.

Tucker knows what he wants -- to be a writer -- but never gets around to setting goals based on that desire. At one point in his story, when he finally lands a lucrative job, I thought, "Good, now he'll put away some money so he can take a sabbatical and finally write that novel!" Instead, the first thing Tucker does with his new paycheck is buy his wife a designer handbag, then a nicer television, and so on. Keeping up appearances not only gets him into debt, it holds his dreams hostage.

Defeating the Green-Eyed Monster

To overcome money envy, we need to figure out our purpose, identify what we love and value most, and make our money obey our values by setting specific financial goals. Because if we achieve the things we value most, we'll be less riveted by what the neighbors are doing.

This isn't a one-time exercise, but a lifelong struggle. The Joneses, the media, and American culture will forever seduce us to betray what is genuinely meaningful for what is comfortable, beautiful, and enviable.

Boss discusses the use of sports psychology as a way to defeat envy -- that is, using mental training to develop an internal center of control and "create our own reality." For example, one of my highest priorities is my children's education; school tuition and college savings put a sizeable dent in my family's discretionary income.

But when I long for a nicer car, I visualize my kids graduating from college, completely free to choose their path in life without the burden of student loans. That image reminds me that while I may not look rich to the rest of the world, I'm achieving wealth by my own definition, on my own terms.

See Laura's answer to the question "What's the trick to living in the moment?" at Yahoo! Answers.