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Money, Wellbeing, and Happiness: The Ultimate Guide

Jake - Author/Founder

Hi. I'm Jake, a frugal Canadian Engineer. I believe you can build a great life through frugal living and index investing.

You and I feel immense pressure from society and advertisers to spend money on goods and services. Often, these goods satisfy your natural impulses. 

Spending in response to these pressures produces a  jolt of “happiness”. But this happiness is often fleeting.

It is the norm to fall into this trap.

I’ve been reading about wellbeing alto recently.  One thing I’ve noticed is that money must be spent in very specific ways to improve well-being and happiness.

In this guide, I will:

  • Explore the psychological origins of well-being and happiness.
  • Look at the relationship between money and well-being.
  • Cover actionable ways to spend, earn and invest for a better life based on your unique values. 

The things I learned to write this post gave me even more reason to embrace frugal living. Many of the things that improve well-being are free. Many even generate income. 

Hopefully, this post helps you reflect to live a wealthier life. 

Table of Contents

Definitions: Happiness and Wellbeing

The definitions for happiness and wellbeing are not black and white in the psychology literature. I’ll define both happiness and wellbeing to keep things clear and consistent in this guide. 

Nissan Teleb’s books The Black Swan and AntiFragile have increased my respect for things that stand the test of time. 

Aristotle’s approach on happiness & wellbeing is over 2000 years old. 

Aristotle breaks out wellbeing into two factors called “Hedonia” and “Eudemonia”. I follow this model and define “happiness” as Hedonia and “wellbeing” as Eudemonia


Image of Aristotle

Definitions For This Guide

Happiness: A feeling of joy, excitement, and positive emotion. Best described as “feeling good”. Happiness is referred to as Hedonia in Aristotle’s 2000-year-old model.

Wellbeing: Best described as “flourishing”, which requires the engagement of your skills to achieve personal growth. Wellbeing is referred to as Eudemonia in Aristotle’s 2000-year-old model. 

What is Happiness?

Happiness is defined as the experience of positive emotion. Feelings like joy, excitement, optimism, and euphoria are examples. These feelings come from chemicals in your brain: dopamine and serotonin

Many common sources of happiness are not sustainable because we adapt. Then we require more of the initial stimulus to get the same happiness. 

A few sources of happiness are sustainable. Understanding these can be useful to guide your spending and use of time.

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Sources of Happiness

Unsustainable Sources of Happiness

Everywhere you look, you will find activities that hijack your ancient biological reward systems. These sources of instant gratification include social media, fast food, alcohol, porn, and gambling. 

These guys share characteristics with addictive things. 


Drugs mess with your reward system. Alcohol, nicotine, cocaine, MDMA, and heroin all release dopamine, improving happy feelings. But then you quickly adapt and become addicted. 

Once an addict, the drug only has one function. It helps you escape the pain of withdrawal. So much for “happy”. 

Garbage Food

Your brain is designed for an environment where you often go without food for days. High-calorie food is an opportunity to store calories as fat, increasing your chances of survival. 

Clearly, this reward system is not designed for our current environment. A quick drive down the road gets you all the high-calorie cake that your heart desires. The short-term hit of positive emotion ends an hour later when you come down from the sugar rush and need a nap. 

Quick Wins and Luxury Goods

You can also get a solid dopamine hit from a quick win at the casino, or a 1000% daily gain on the most recent Shitcoin.

Similarly, you can seek out the thrill of options trading, day trading or playing the lottery. The odds are not in your favor, and a poor outcome is likely under conditions of repetitive decisions. 

The nice dopamine wave also comes when you upgrade your phone or buy a luxury good (or service) to improve perceived status. But this feeling quickly fades as you adapt. Now you require more of [insert luxury item] to receive the same level of satisfaction. Reliance on luxury goods ends up in a vicious cycle of spending, adaptation, and clutter. 

The Problem With Happiness: Hedonic Adaptation

All unsustainable sources of positive emotion:

  • Are acquired from external sources;
  • Result in quick adaptation.  

That nice feeling of driving a new vehicle? It soon dissipates. Now you need to step up to the next model to feel the same hit of positive emotion.

Win the lottery? You’ll quickly revert to your level of happiness before your win. Or maybe happiness declines as everyone starts asking you for money, and you have difficulty judging whether your friendships are genuine. 

Most forms of pleasure are short-lived. We quickly adapt and revert to our baseline level of positive emotion. Our tolerance to feel good increases and we need more of the original input to feel the same intensity of positive emotion.

This can lead to a never ending cycle where we sacrifice long-term wellbeing for present gratification. 

Sustainable Sources of Happiness

Now for the fun part. Sustainable sources of happiness.

There are activities that increase positive emotion, without the adaptive side effects. Examples include:

  • Mindfulness Meditation
  • Human Interaction
  • Deliberate Gratitude
  • Hitting The Gym
  • Eating a Healthy Diet 
  • Sleeping Well

I see an important theme. All forms of positive emotion are difficult to acquire, and most are free. Further, many sources of sustainable happiness are rooted in strong habits. 

Freedom from Hardship

We can look at positive emotion through a different lens – the reduction of hardship. This occurs when you avoid pain, like when you vacation on the beach. 

Don't Get Too Comfortable

Water is satisfying when you are thirsty. But it does not help after you reach the threshold of hydration. Freedom from hardship improves happiness to a point, but there is then a limit. 

Extra comfort – after your basic needs (shelter, food, safety) are met – doesn’t help. Comfort included in Maslow’s Hierarchy of Needs.

Maslow's Hierarchy of Needs

Maslow's Hierarchy of Needs

I believe excessive comfort erodes resiliency. Comfort makes you soft. Get too soft, and you’ll be unable to manage when life gets tough. 

Without resiliency, life is harder than necessary. Sprinkling hardship throughout life in small doses reduces hardship over the long term. 

Do Something Hard Every Day

To counter this, I do something hard every day. I encourage you to do the same. Challenge yourself at work, workout, read daily, or meditate.

Once our basic needs are met, everything else is based on an arbitrary reference point, because we adapt to comfort.

Money and Happiness: The Relationship

Income and Happiness

Per capita income has increased by 2% per year over the last 50 years, and the average American and Canadian has a lifestyle that is richer than the richest King 200 years ago.

 We are not happier, despite being far richer.

This suggests that income above the amount needed for basic needs has little influence on happiness. 


It seems that our happiness is partially influenced by genetics. Some people feel less positive emotions than others. 

I prefer to approach this like the stoics – to focus on the things within our control. Time and money are within your control. Let’s see how you can use time and money to enhance happiness.

Does Money Buy Happiness?

The answer is “sort of”. Some studies conclude that happiness plateaus after $75,000/year. Whereas this study finds that money improves happiness (they call happiness experienced wellbeing).

As we discussed, money can reduce negative emotion (improve happiness) if it can be used to secure shelter, transport, and food up to basic functional needs. After this point, money indirectly improves happiness if it’s used to:

  • Free up time, if the time is used to conduct activities that provide sustained happiness.
  • Reduce hardship (negative emotion) by paying down consumer debt and having an emergency fund. 
  • Buy experiences that improve positive emotion. 

Use Money to Buy Time

It is hard to focus on the activities that bring happiness if you don’t have the time. Money can be used to free up time by outsourcing activities: 

  • Yard Work 
  • House Cleaning 
  • Grocery Delivery
  • Living Close to Work 

Now that you have free time, you can engage in fitness, meditation and relaxation to reduce hardship. Plus, it reduces the negative emotion associated with time stress. 

But what if you don’t have the income to outsource time?  You can still engineer a low cost lifestyle to reduce wasted time. This is the whole idea of frugality. 

Time is great, but it doesn’t make you happy unless you use it to engage in activities that sustain positive emotion. 

Use Money to Buy Experiences

Money can buy good experiences. And I’m not talking about a week-long drinking binge at a Cuban resort. 

A fitness class that permits human interaction and exercise is a good example of an experience. The like-minded humans you meet here will be into healthy eating, further promoting the cycle of lifestyle habits that bring positive emotion. 

Buy Quality Material Goods That Improve Experiences

Material items don’t buy you happiness unless they save you time or enable great experiences.

For example, the best tools improve enjoyment for the hobbyist woodworker. Similarly, a nice road bike will improve the cycling experience.

As for time savings, quality furniture will last longer than cheap furniture. This saves your time researching, maintaining, and disposing of furniture.

Reducing Negative Emotion

Imagine Joe, who has a huge debt load with bankruptcy imminent. Joe feels out of control and has mountains of anxiety over the security of shelter, transport, and food. 

Joe is excited for a life free from consumer debt, where he has a healthy emergency fund. In this state, Joe would reduce negative emotions. 

Joe must first sustain a gap between his income and expenses to pay down debt and build an emergency fund.  Once the debt is paid down, Joe sustains his savings rate and invests in growing wealth. 

Strong money management habits and decisions are the keys to sustaining a gap between income and expenses. In turn, these savings will fuel your journey to grow wealth. 

Happiness is Hard

All the items of sustainable happiness are hard. They require self-discipline. Meditating daily is hard.  A fitness regime is hard to stick with. It’s hard to avoid debt, and it’s hard to eat healthily. 

To be successful, you will need to protect yourself from your own impulses by setting up proper systems and habits.

Happiness Is a Bad Goal

There, I said it. Happiness (positive emotion) is a bad goal.

If positive emotion was a desirable end state, you’d be on drugs all the time, retirees wouldn’t get depressed, and you’d be content sitting on a beach all day. There is much more to life than feeling good. This is the basis of my concern about the “Retire Early” part of the FIRE movement. 

Life is hard. People die, relationships are difficult, responsibility is hard, you are susceptible to addictions, you need to fail (many times) to succeed,  and negative emotion is necessary to feel positive emotion.

It is not about making life easy. It is about becoming robust so you can endure life’s storms.

This is a great transition to the more important factor – wellbeing.

What is Wellbeing?

Wellbeing is best described as becoming the best version of yourself – flourishing – like a flower. Your form of flourishing will be unique to you, based on your unique skillsets and values.

Although your form of flourishing is unique, there are common factors that contribute to wellbeing according to the academics. These factors are purpose, responsibility, accomplishment, and personal growth. 

Let’s go through two academic models of wellbeing. 

Model 1: The PERMA Model of Wellbeing

One of my favorite models of wellbeing is the PERMA model by Dr. Seligman. This model states that wellbeing is made up of five factors:

Positive Emotion: Gratitude, physical pleasure, mindfulness, hope and optimism about the future. I describe positive emotion (hedonia) in the above section on happiness. 

Engagement: When your skills are well matched to a challenging activity. You enter a state of “flow”. This is a fantastic place to be. Here you are present and all your worries disappear. I experience flow when writing, cycling and working on vehicles.

Relationships: Forming connections with other humans. These are deep connections – not just surface-level conversations with your drinking buddies. 

Meaning: Serving a purpose that is greater than your individual self. Meaning usually involves some form of self-sacrifice. Serving in the Armed Forces is an example. 

Accomplishment: It feels good to overcome obstacles. Examples include arriving at home after a hard workout, finishing a blog post, or meeting a milestone on a major project at work. You can engineer your environment to provide consistent accomplishment. 

Model 2: The Five Essential Elements of Wellbeing

Another model is the Five Essential Elements of Wellbeing by Gallup. The 5 essential elements of wellbeing from this model are:

  1. Career Wellbeing: The wellbeing obtained through an engaging and meaningful career.
  2. Social Wellbeing: Your friends, intimate relationships, and relationships at your place of work.
  3. Financial Well-Being: Debt free, emergency fund in place. 
  4. Physical Wellbeing: Sleep, physical fitness levels and nutrition. Physical wellbeing improves your health and energy levels.
  5. Community Wellbeing: Your influence on your community, and your sense of belongingness.

These facets of wellbeing were developed by testing people across various cultures and languages over many years. These sources of wellbeing seem to be innately human, regardless of culture, religion or race – that’s neat. 

Distilling The Two Models of Wellbeing

I like the PERMA model because it outlines the fundamental building blocks of wellbeing.

Each of the 5 Essential Elements of Wellbeing can be broken down into the underlying PERMA model factors. The only item not captured by the PERMA model is physical wellbeing. 

For example, the underlying factors behind career wellbeing and community wellbeing are relationships, engagement, and meaning (from the PERMA model).

So, let’s model wellbeing with the PERMA model and add the additional factor of physical wellbeing. Solid physical health is important. It reduces stress and boosts energy through exercise, sleep, and nutrition.

Happiness vs. Wellbeing

Did you notice that positive emotion (happiness) is included in the PERMA model?  Wellbeing includes happiness. 

But many of the wellbeing factors such as meaning, accomplishment and engagement require short-term hardship. During these times of difficulty, you will not feel positive emotion.

You must balance positive emotion (happiness) and flourishing. Let’s show through an example.

The Happiness - Wellbeing Balance

Consider George who meditates for 12 hours per day. Although this is a sustainable source of positive emotion, George lacks meaning, engagement, and accomplishment. George is free from negative emotion, but this is not enough. George is just like the early retiree devoid of purpose.   

Alternatively, consider Laura – a military officer who works long hours and has a tight nit family at home. Laura is flourishing. Her career brings an enormous source of meaning, relationships, engagement, and accomplishment. 

Laura’s life is extremely demanding, and she doesn’t experience much positive emotion. Laura experiences wellbeing, but not much happiness. 

There is a balance in between the extremes of George and Laura. Activities that stimulate accomplishment, engagement, and meaning are difficult and bring negative emotion. These activities can be balanced with the Hedonic experiences that bring happiness. 

The Modern Environment: Wellbeing and Happiness.

Quick dopamine hits are easily accessible through social media, instant communication, dating apps, and online gamified investing. These distractions can reduce our ability to focus.

In turn, we are less able to complete the tasks that bring us a sense of purpose and accomplishment. Today’s dopamine-infested environment makes it harder to achieve well-being.

The book Deep Work by Cal Newport covers this concept in good detail. It’s also a smooth read, and can help you foster skills to increase income. 

Finally, it’s harder to control spending in our modern environment. I discuss this more in 7 Reasons It’s So Hard To Control Spending In Our Modern Environment.

Money And Wellbeing

Now that we understand wellbeing, we can answer the important question: How can we use money to improve wellbeing? 

Let’s use the PERMA model + physical well-being is the foundation. This means you can aim to spend, earn, and invest money in a way that improves: 

  • Positive Emotion: We discussed this in the happiness section. 
  • Engagement of our skills to enter a state of flow
  • Relationships 
  • Meaning (purpose)
  • Accomplishment  (overcoming obstacles) 
  • Physical Wellbeing (sleep, fitness, nutrition). 

Much like happiness, well-being is influenced by how you use your time.  But unlike happiness, wellbeing strongly depends on your career and hobbies.  

Income and Wellbeing

Your work can be one of your main sources of of wellbeing.

Businesses and employees exist to solve problems for other people. Therapists solve phycological problems, aircraft technicians solve maintenance problems, and doctors and nurses solve health problems.

By solving these problems, you engage your skills in meaningful work that improves the lives of others. Plus, you interact with various people at work, stimulating human relationships. You just met 80% of the PERMA model criteria of well-being through proper employment.

The best part is that you get paid for this. While you are receiving income, you are also maintaining well-being.

I believe it’s important to find a job that you find important and meaningful.

When you live below your means and have an emergency fund, you can absorb a temporary income drop during a job transition to more meaningful work.

Growth is helpful to well-being. From the PERMA Model, you are engaged and get accomplishment by improving your knowledge and skills. As you improve, your Human Captial increases and you are likely to increase income. 

Buy Time

Time is your most valuable resource. It’s in your best interest to focus your time on things that bring you meaning, engagement, and accomplishment. Otherwise, you’ll pay in the form of anxiety and future regret. 

We already discussed how to buy time. You can pay someone to shovel your driveway, cut the grass, or have groceries delivered. 

Newfound time can then be used to hit the gym, build family and community relationships, and immerse yourself in hobbies you find meaningful. 

Save Energy and Time With Frugal Living

Frugal living and time savings go hand in hand. Here are some examples: 

Now you have extra time to focus efforts on activities that are engaging, fulfilling, and meaningful – like entering a state of flow while writing a post on wellbeing.

Infographic: Stuff

Spend on Experiences and Hobbies

Experiences and hobbies can be engaging by improving your knowledge and skills, helping you flourish.

Consider the avid mountain biker who is fully engaging her skills to dodge the trees. Or the woodworker, who hones his skills to build a beautiful ash bookshelf.  

Both the woodworker and mountain biker require material items to pursue their craft. Although material goods do not help with happiness, they can help with wellbeing if the material items enhance your unique experiences and hobbies. 

Books are also engaging and low-cost. They push your intellectual limits and promote flourishing.

Books can also increase income, provided you can apply what you learn. What a great way to use your time.

Investing and Wellbeing

Under the power of compounding, investing can grow massive wealth over time. But how does wealth improve well-being? 

First, your investments free up your time by producing passive cash flow. Common cash flow sources include dividends, real-estate rental units, or capital gains (realized). 

At some point, investment cash flow will cover your expenses. Financial Independence is a term for this in the personal finance world. Working is optional at this point. You can allocate your time to activities that bring maximum well-being.

Secondly, wealth helps you magnify your sense of purpose. Bill Gates uses his wealth to eradicate polio, and Elon Musk to build electric vehicles. 

This explains why the wealthiest people in the world give more money to philanthropy efforts than they do to themselves. Wealth is a tool to improve your scope of influence.

I cover this concept in more detail in a post about why Net Worth is Important.  

Wellbeing is Hard: The Importance of Self- Discipline

Well-being, including sustainable positive emotion, is hard to achieve.

All activities that bring well-being involve delayed gratification. We must suppress short-term impulses for a better long-term life.

Like growing wealth or building a blog, well-being doesn’t happen overnight. It requires that you build strong habits, one at a time.

For more on self-discipline and habits, check out Self-Discipline: The Key to Building Wealth. 


  • Your work should be a source of wellbeing. Most sources of wellbeing generate income as you are paid for adding value to the lives of others. 
  • Wellbeing is hard. You need to endure short-term negative emotion and overcome obstacles. Resiliency and self-discipline are important. 
  • Understanding wellbeing can help you identify when you have “enough” financially, to avoid undue sacrifice in the pursuit of wealth.
  • Material status symbols do not increase happiness or wellbeing. 
  • Material goods can improve well-being if they save time and improve engagement in meaningful hobbies. 
  • Frugal living frees up time and energy that can be used to improve wellbeing through relationships, self-improvement and meaningful work/hobbies.