What Psychology Teaches Us About Money, Happiness, and the Regrets That Matter Most
When people come to me to discuss financial planning, or talk about managing money, many times the first conversations end up being about returns, taxes, or retirement. But honestly? The starting point should actually be: What makes life good? What makes you happy, and what do you want to be able to do in retirement? Increasing returns, reducing taxes, and optimizing cash flow are all things that are involved in answering these questions, but they aren’t the end result.
Those are not a feel-good questions, by the way— “What makes life good?” is one that’s been studied seriously by psychologists, economists, and even end-of-life researchers. What they’ve found is both surprising and useful: the way we spend and plan doesn’t just affect our bank account – it directly affects our happiness and the likelihood we’ll look back on life with fewer regrets.
I know you probably expected an article on Financial Planning, but lets take a detour and look at Psychology for a moment.
Two Kinds of Happiness You Should Know About
Happiness isn’t just one thing. Psychologists split it into two main types:
- Hedonic happiness is about feeling good right now. Think: enjoying a great meal, buying something fun, or taking a vacation.
- Eudaimonic happiness is deeper. It’s about life satisfaction, meaning, purpose, and feeling like your life adds up to something valuable.
We need both – but the tricky part is they don’t always line up. That’s why we sometimes feel torn between enjoying the moment and doing what we know is better for us long term.
The PERMA Framework: What Makes Life Flourish
Dr. Martin Seligman, a psychologist and one of the founders of positive psychology, created the PERMA model to explain what a flourishing life looks like. According to his research, there are five (or six) main ingredients:
- Positive Emotions: joy, gratitude, hope
- Engagement: being absorbed in what you’re doing (aka “flow”)
- Relationships: strong, supportive connections
- Meaning: feeling connected to something bigger than yourself
- Accomplishment: striving toward goals just for the sake of it
- (And optionally) Vitality: physical health, sleep, energy, and nutrition
Each one contributes to well-being in its own way. As Seligman puts it in his 2011 paper, these elements should contribute to well-being, be pursued for their own sake, and be defined and measured independently.
So if you’re wondering whether buying that Peloton, joining a community group (or maybe Kelowna Yacht Club ☺), or spending more time outdoors is “worth it,” ask if it checks one or more of these boxes.
Why “More” Rarely Feels Like Enough
One great book I’ve read is The Psychology of Money by Morgan Housel, and a great take-away from it is: we’re terrible at recognizing when enough is enough.
He writes,
“The hardest financial skill is getting the goalpost to stop moving.”
In other words, it’s not always about greed – it’s about expectation drift. You get a raise, and your lifestyle expands to meet it. You buy a nicer car, and soon the old one feels inadequate. You upgrade your house, and then you’re eyeing the neighbor’s kitchen remodel.
This is exactly why financial satisfaction often lags behind financial progress. Unless you define what enough looks like in your own life, it’s easy to slip into a cycle where no amount of money ever feels sufficient.
This isn’t just about spending either – it’s about what you’re chasing. If you’re always stretching for “the next level” because someone else has it, you’re measuring your success with someone else’s ruler.
So before you upgrade the car or commit to the bigger mortgage, the question to ask is:
Will this actually improve my life – or just my image of success?
The Happiness Pie Chart: What’s Actually in Your Control?
A 2005 study by Lyubomirsky, Sheldon, and Schkade broke happiness down like this:
- 50% is genetic (your natural set point – thanks mom & dad)
- 10% is life circumstances (like income or where you live)
- 40% is your choices and behaviors
About 50 % for genetic factors, 10 % for circumstantial factors, and the remaining 40 % for volitional or intentional activity factors. (Lyubomirsky et al., 2005)
What’s interesting is that the 40% is all you. It’s how you spend your time, what you think about, how you manage stress, and yes – how you use your money. This is where financial planning comes in. Once we find out what truly makes you happy, we aim to be able to continually do “that” in retirement.
A perfect example is a client of mine has a daughter living in BC, who is about to have a baby girl. She recently asked if she could afford to move to BC to be near her soon-to-arrive granddaughter, and still retire comfortably. We are going to make this possible.
In a 2019 update, the researchers doubled down on this point, saying that “individuals can boost their well-being via their intentional behaviors, and maintain that boost in the longer term.” (Sheldon & Lyubomirsky, 2019)
Your Brain: The Elephant and the Rider
Why don’t we always do the logical/smart thing if we know better?
A helpful metaphor is to imagine your mind as an elephant (emotions, habits, impulses) and a rider (logic, reason). The rider may hold the reins and guide the elephant, but ultimately the elephant is far stronger.
This why setting good systems and putting a plan in place – like automatic savings, reinvesting your tax refund, habit loops, and identity-based goals – can help the rider steer, even when the elephant wants to veer off track.
It’s also why you shouldn’t rely on discipline alone. Build routines that nudge you toward better behavior.
Another example: if you’re trying to diet for your next vacation etc., remove the sweets from the house, and it’ll likely be much easier!
Regret at the End of Life: What Actually Matters
This next section is something we’ve all heard stories about – when someone is at the end of their life you’ll find the same themes come up again and again.
- People rarely wish they worked more or bought more stuff.
- They often regret not spending more time with family, not pursuing meaningful opportunities, or not reconciling with someone.
- The deepest regrets tend to be inactions, not mistakes.
Not surprisingly, the researchers find the exact same thing.
Daniel Pink’s research summarized here highlights four common types of regret:
- Foundational – Poor choices around health, money, or education
- Boldness – Playing it safe and not taking chances
- Moral – Acting against your values
- Connection – Letting important relationships fade
What stood out most? Connection regrets were felt most intensely. People want to feel like they lived well with others.
So, What Can You Do with This?
- Get clear on your values. They should drive your financial goals – not the other way around.
- Spend on what supports well-being. Things that strengthen relationships, boost engagement, or promote health tend to deliver more bang for your buck. Remember, you can’t take the money to the grave, and once you’re gone, you aren’t going to care about it anymore. If spending a little more supports your well-being, and you can handle it, do it. This is where having a plan comes in hand.
- Watch for lifestyle creep. The pursuit of “more” can actually leave you less satisfied if it doesn’t align with what matters.
- Plan for connection. Budget time and resources for the people and moments that make life feel meaningful – not just productive.
Disclosures:
Important information about mutual funds is found in the Fund Facts document. Please read this carefully before investing. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Mutual funds are not guaranteed, their values change frequently, and past performance may not be repeated. Unit values and investment returns will fluctuate.
The information provided is based on current laws, regulations and other rules applicable to Canadian residents. It is accurate to the best of our knowledge as of the date of publication. Rules and their interpretation may change, affecting the accuracy of the information. The information provided is general in nature and should not be relied upon as a substitute for advice in any specific situation. For specific situations, advice should be obtained from the appropriate legal, accounting, tax or other professional advisors.
Sources and Further Reading
- Lyubomirsky, S., Sheldon, K. M., & Schkade, D. (2005). Pursuing happiness: The architecture of sustainable change. Review of General Psychology, 9(2), 111–131. https://doi.org/10.1037/1089-2680.9.2.111
- Sheldon, K. M., & Lyubomirsky, S. (2019). Revisiting the Sustainable Happiness Model and pie chart: Can happiness be successfully pursued? The Journal of Positive Psychology, 14(4), 273-289. https://doi.org/10.1080/17439760.2019.1689421
- Seligman, M. E. P. (2011). Flourish: A visionary new understanding of happiness and well-being. Free Press.
- Haidt, J. (2006). The Happiness Hypothesis.
- Pink, D. H. (2022). The Power of Regret.
- Housel, M. (2020). The psychology of money: Timeless lessons on wealth, greed, and happiness. Harriman House.
A friendly reminder that money should support your life – not distract you from living it.
By tying your financial choices to proven drivers of happiness, you’re far more likely to look back without regret.
