I recently watched a fantastic video by Ben Felix about finding and funding a good life, and it completely changed how I think about personal finance.

We are usually taught that the whole point of working, saving, and investing is to just accumulate as much cash as humanly possible. We treat our bank accounts like high scores in a video game. But Ben points out that money is just a tool. The real goal of personal finance is actually funding a "good life."

The problem is that most of what we think will make us happy is completely at odds with what decades of psychological and economic research actually tells us. Here are my biggest takeaways from the video and how we can all start making better choices with our money.

Happy Moments vs. Fulfilling Lives

Researchers generally measure happiness in two different ways.

The first is experienced happiness. This is how you feel right now in the moment. It is the joy of eating a great pizza or the frustration of sitting in traffic.

The second is reflective happiness. This is how you rate your life overall when you take a step back and think about it.

There is a huge difference between the two. You could have a great life on paper with a good job and a nice house but be totally stressed out and miserable every single day. On the flip side, you could party in a hot tub all day and feel great in the moment but feel incredibly empty when you reflect on where your life is heading. A good life requires a balance of both.

The Ingredients of a Good Life

Because happiness is so complicated, positive psychology uses something called the PERMA V model to break down the core ingredients of human well being. It stands for:

  • Positive Emotion: Feeling good on a day to day basis.
  • Engagement: Getting completely lost in a challenging task (also known as a flow state).
  • Relationships: Having a solid, reliable crew of friends and family.
  • Meaning: Being part of and serving something bigger than yourself, like a community.
  • Accomplishment: Doing hard things just for the sake of doing them.
  • Vitality: Getting enough sleep, eating well, and exercising.

Chasing money just for the sake of getting rich can actually destroy these core ingredients. It takes away your time, stresses you out, and ruins your vitality.

The Money Problem

So, does money buy happiness? Yes, but only up to a certain point.

Ben references a famous 2010 study showing that daily experienced happiness peaks around an income of $75,000 (which is about $112,000 adjusted for today). Another study found that overall life satisfaction in North America peaks around $137,000 in today's dollars.

Fascinatingly, after hitting those numbers, happiness actually goes down for a lot of people. Higher incomes usually bring less free time, way more stress, and a toxic habit of comparing yourself to your ultra wealthy neighbors.

Plus, the relationship between income and happiness works on a log scale. That means getting a $10,000 raise will not radically change your mood. To get a noticeable bump in happiness, you basically have to double your income.

Why We Are Terrible at Predicting Our Happiness

If the data is so clear, why do we keep making terrible financial choices? It comes down to two major mental blind spots.

First, we adapt incredibly fast. Psychologists call this the Hedonic Treadmill. You buy a fancy new car and feel amazing for a month. But soon enough, it just becomes your car, and you are back to your baseline level of happiness.

Second, we suffer from the End of History Illusion. We tend to think our current personalities and goals are locked in stone forever, completely ignoring how much we have changed over the last decade. That extreme early retirement plan you are sacrificing everything for today might completely bore the future version of you.

How to Actually Spend Your Time and Money

Since we are so bad at predicting the future, we need to focus on how our financial choices affect our daily lives right now. Here is what the science says about spending:

  • Buy time, not stuff: People who value time over money are consistently happier. They have better relationships and less stress. If you can spend money to buy back your time (like paying for a house cleaner or a shorter commute), do it.
  • Renting is completely fine: Society pushes homeownership as the ultimate dream. However, studies show that homeowners are not generally happier than renters. Owning a home is basically a part time job full of chores, unexpected expenses, and endless maintenance. Renters can just call a landlord.
  • Skip the dream cottage: Buying a vacation cabin sounds like a perfect way to bond with family. But people always forget to factor in the miserable Friday traffic, the constant upkeep, and the inevitable family drama.
  • Experiences beat things: Spending money on a trip or a concert brings way more joy than buying a new couch. You get to share experiences with other people, and your memories of that trip actually get better over time.
  • Treat yourself in small doses: Because we adapt to big purchases so quickly, it is actually better for your brain to buy lots of small, frequent treats. Getting a daily coffee or spending money on a regular hobby will bring you more sustained joy than blowing all your cash on one massive luxury purchase.

Regret and Meaningful Work

The video also touched on a really interesting point about regret. Over the long haul, humans regret the things they didn't do way more than the things they did. Playing it too safe with your career or holding back on an exciting opportunity often leads to massive regret later in life.

Also, while financial independence is a great goal, retiring early from a job you actually like can completely strip you of your life's purpose. Studies show that people who love their work might be better off keeping their jobs. Doing so gives you the freedom to spend more of your money and enjoy your life today instead of hoarding it all for a future you cannot predict.

Figuring Out What You Want

When you ask people what their financial goals are, they usually just give a generic answer like "I want to retire." But when you prompt them to look at frameworks like the PERMA V model, they uncover much deeper and more meaningful goals.

We are biologically wired to chase quick hits of dopamine and social status. It takes serious effort to step back and honestly ask yourself if your money choices are actually building a life you want to live.

I highly recommend checking out Ben Felix's video to dive deeper into all of this data. The very first step to funding a good life is figuring out what your good life actually looks like.