The Hedonic Treadmill and Investing: Why Your Next Raise Won't Make You Happier (But Building Wealth With XEQT Might)

I want to tell you about the happiest two weeks of my financial life, and what happened after.

In 2019, I got a promotion that bumped my salary from $55,000 to $75,000. Twenty thousand dollars. A 36% raise. When I got the news, I remember sitting in my car in the parking lot, doing the math on my phone. That was an extra $1,250 a month after tax. I called my partner, called my parents, texted my friends. I went out for dinner that night and ordered without looking at the price column for the first time in my adult life. It felt like a different life had just started.

Within a month, I had signed a lease on a nicer apartment. One bedroom to a proper one-plus-den, in-unit laundry, a building with a gym I told myself I would use every morning. Rent went from $1,350 to $1,875. I also upgraded my car situation – traded in my 2012 Civic for a lease on something newer. The payments were “only” $380 a month. I started eating out three or four times a week instead of once. I bought better clothes. I subscribed to things I had been putting off – a better gym, a meal kit service, a streaming bundle.

By month three, the raise felt normal. Not exciting, not transformative – just normal. I was making $75,000, and I was spending like someone who makes $75,000. My bank account balance at the end of each month looked almost identical to what it had looked like at $55,000. I remember sitting on my couch in my nice new apartment, looking at my banking app, and feeling a genuine sense of confusion. Where did it all go? I was earning $20,000 more per year, and I had essentially nothing to show for it.

Here is the strange part. A few years later, after I had discovered XEQT and started investing consistently, I watched my portfolio cross $50,000 for the first time. I did not celebrate. I did not go out for dinner. But something shifted in how I felt about my life that was different from any raise I had ever received. It was quieter. More like a low hum of calm that settled into the background and stayed there. The knowledge that I had $50,000 working for me, growing silently, buying me options I did not have before – that feeling did not fade after two weeks. It did not fade after two months. If anything, it got stronger as the number kept climbing.

That contrast – the fleeting high of a raise versus the sustained calm of a growing portfolio – is the hedonic treadmill in action. And understanding it might be the most important thing you ever learn about money.

What Is the Hedonic Treadmill?

The hedonic treadmill – also called hedonic adaptation – is the well-documented psychological phenomenon where humans quickly return to a relatively stable level of happiness after major positive or negative life events. You get a raise, buy a new car, move to a nicer city – and within weeks or months, you feel roughly the same as you did before.

The concept was first described by psychologists Philip Brickman and Donald Campbell in their 1971 essay “Hedonic Relativism and Planning the Good Society.” Their argument was radical for the time: improvements in external circumstances do not produce lasting improvements in happiness. We adapt. We recalibrate. We return to baseline.

The Famous Lottery Study

The most cited evidence for the hedonic treadmill comes from a 1978 study by Brickman, along with Dan Coates and Ronnie Janoff-Bulman. They studied three groups: recent lottery winners, people who had become paraplegic due to accidents, and a control group. The findings were shocking.

Lottery winners were not significantly happier than the control group. And people who had experienced devastating spinal cord injuries were not as unhappy as you would expect – within roughly a year, their reported happiness levels were closer to baseline than anyone predicted. The lottery winners, meanwhile, actually reported getting less pleasure from everyday activities (eating breakfast, talking with a friend, watching TV) than the control group, because winning had shifted their reference point for what counts as a good experience.

The takeaway was stark: humans have a happiness set point – a baseline level of subjective wellbeing that they tend to return to regardless of what happens to them, for better or worse.

The Nuance: It Is Not Quite That Simple

The original hedonic treadmill theory was a bit too clean. More recent research has added important nuance.

In 2010, Daniel Kahneman and Angus Deaton published a landmark study using Gallup data from over 450,000 Americans. They found that emotional wellbeing – how happy, stressed, or sad you feel on a day-to-day basis – plateaus at around $75,000 USD in annual household income. Above that number, earning more money did not make people feel better day-to-day. Adjusted for inflation and Canadian purchasing power in 2026, that threshold is roughly $100,000 CAD for a household.

But here is the nuance: Kahneman and Deaton found that life evaluation – your overall assessment of how well your life is going – continued to rise with income well above $75,000. People who earned more rated their lives as better, even if they did not feel happier moment-to-moment.

Then in 2021, Matthew Killingsworth from the Wharton School published research that challenged even Kahneman’s findings. Using real-time experience sampling from over 33,000 employed adults, Killingsworth found that experienced wellbeing does continue to rise with income above $75,000 USD – it just rises at a decreasing rate. More money keeps making most people a bit happier. The line bends but does not flatten.

However – and this is critical – Killingsworth also found that for the unhappiest 20% of people, wellbeing does plateau at around that $100,000 mark. For people who are already suffering from depression, anxiety, relationship problems, or chronic stress, more income stops helping relatively early. Money can solve money problems, but it cannot solve non-money problems.

What all of this research tells us is that the hedonic treadmill is real, powerful, and applies to most income gains – but it is not absolute. The type of financial improvement matters enormously. And that distinction is where XEQT comes in.

The Hedonic Treadmill and Your Salary

Let me describe a pattern I have watched play out in my own life and in the lives of nearly every Canadian I know who has had a successful career.

You start your first real job at $50,000. Rent is $1,400, you take the TTC, you eat at home most nights, you buy your clothes at Winners. Life is tight but manageable. Then you get a raise to $58,000. You feel a burst of relief and excitement. Within four months, your expenses have adjusted – maybe you moved to a slightly nicer place, or you stopped tracking your food spending so carefully. The raise is gone. Not wasted, exactly, but absorbed.

Two years later, you switch jobs and jump to $72,000. This time you lease a car because you are tired of the bus in January. You join a nicer gym. You start buying lunch instead of packing it. Within three months, the $72,000 feels normal.

Then comes $85,000. Then $95,000. Then, maybe, $120,000 after a decade of promotions, job hops, and skill development. You are now earning more than double what you started at. And you feel – I am going to guess – almost exactly the same level of financial stress as you did at $50,000. Maybe more, because now you have a car payment and a mortgage and a lifestyle that requires $120,000 to sustain.

This is the hedonic treadmill applied to salary. Each raise produces a burst of happiness that lasts two to four months, then fades as your brain recalibrates to the new normal. But the spending habits you form at each new income level do not fade. They solidify. They become your baseline.

This creates what people sometimes call the golden handcuffs. You are earning good money – far more than you need to survive – but you feel trapped because your lifestyle demands every dollar. You cannot take a risk on a new career. You cannot take six months off to figure out what you want. You cannot handle an unexpected $5,000 expense without stress. You earn $120,000 and you feel broke, which is objectively absurd but subjectively very real.

I have been there. It is a miserable place to be, and the hedonic treadmill is the engine that drives you there.

How the Hedonic Treadmill Keeps Canadians From Building Wealth

The direct financial consequence of hedonic adaptation is that every raise gets absorbed by lifestyle upgrades instead of directed toward building wealth. And in Canada specifically, several forces make this worse.

Housing costs reset your baseline constantly. In Toronto, Vancouver, and increasingly in cities like Ottawa, Calgary, and Halifax, housing costs are so high that any income gain feels immediately spoken for. You get a $10,000 raise and your first thought is “maybe I can finally afford a place with a second bedroom.” The raise gets consumed before you even consider investing it.

Peer comparison is relentless. I wrote about this in detail in my post about why you feel behind everyone else financially, but it deserves repeating here. When your coworkers are driving new SUVs and taking trips to Portugal, your brain resets your “enough” threshold to match. The hedonic treadmill is not just internal – it is socially calibrated. Your neighbours in Mississauga or your colleagues in downtown Vancouver are unknowingly setting the pace of your treadmill.

Advertising exists to reset your adaptation. The entire purpose of advertising is to make you dissatisfied with what you already have. You adapted to your perfectly good phone? Here is a new one with a slightly better camera. You adapted to your apartment? Here is a condo listing with exposed brick and a rooftop patio. Every ad you see is an attempt to speed up your hedonic treadmill so you need to spend money to feel normal again.

The math of absorbed raises is devastating. Let me show you what it costs. Imagine a Canadian who starts at $50,000 at age 25 and gets average annual raises of about 4%, reaching roughly $120,000 by age 45. That is $70,000 more per year in gross income over 20 years.

If they had invested just 50% of every after-tax raise increase into XEQT – keeping the other 50% for genuine lifestyle improvements – they would have accumulated a portfolio worth approximately $430,000 by age 45, assuming an 8% average annual return. That is nearly half a million dollars generated purely from money they would never have missed, because they were living on a lower income just a year before each raise.

Instead, most people invest 0% of their raises. The treadmill absorbs it all. At 45, they have whatever they managed to save from their original spending level – and a lifestyle that demands $120,000 a year to maintain.

The Exception: Financial Security

Here is where this story takes a turn, and where the hedonic treadmill research gets genuinely hopeful.

While hedonic adaptation erodes the happiness from income increases, purchases, and status improvements remarkably quickly, researchers have found a category of financial improvement that resists adaptation: financial security.

This is the key insight of this entire post, so I want to be clear about what the research says.

Elizabeth Dunn and Michael Norton, in their book Happy Money: The Science of Happier Spending (2013), synthesized decades of research showing that money buys happiness most effectively when it buys time and freedom rather than things. Experiences fade less quickly than possessions, and money spent reducing stress and buying autonomy produces more lasting wellbeing than money spent on upgrades.

But even beyond experiences, the research consistently shows that having a financial cushion – an emergency fund, a growing investment portfolio, manageable debt levels – produces a sustained improvement in wellbeing that does not follow the typical hedonic adaptation curve. Why? Because financial security is not a one-time event that your brain adapts to. It is an ongoing condition that continues to provide value every single day.

Think about it this way. When you buy a new couch, you get a burst of pleasure, then you adapt, and the couch becomes invisible background furniture. But when you have $100,000 in your XEQT portfolio, the security it provides renews itself constantly. Every time a stressful situation arises – a layoff rumour, a car repair, a family emergency – your portfolio is there, quietly reminding you that you have options. That reassurance does not fade because the situations that trigger it keep occurring.

It is not the number in your account that matters. It is the optionality it creates. The ability to quit a toxic job without panic. The ability to take parental leave without financial terror. The ability to handle a $3,000 car repair on a Tuesday afternoon without rearranging your entire month. The ability to say “no” to things you do not want to do because you do not need the money badly enough to tolerate them.

This is what a growing XEQT portfolio provides. Not a burst of pleasure that fades in two weeks, but a deep, structural sense of security that gets stronger as the portfolio grows. The hedonic treadmill struggles to erode something that provides fresh value every day.

How XEQT Investors Can Beat the Hedonic Treadmill

Understanding the hedonic treadmill is valuable. But understanding it without a plan is just depressing. Here are the specific strategies I use – and that I think every Canadian XEQT investor should adopt – to keep the treadmill from eating your wealth.

1. Automate Before You Adapt

This is the single most important tactic. When you get a raise, you have a window of approximately two to four weeks before hedonic adaptation kicks in and your spending expands to absorb the extra income. Once that window closes, the money feels like it was always spoken for, and diverting it to investing feels like a sacrifice.

The fix: the day you learn about a raise, log into Wealthsimple and increase your automatic XEQT contribution. Not next week. Not after you “see how the new budget feels.” That day. Invest at least 50% of the after-tax increase. If your raise is $6,000/year after tax, that is $500/month – commit $250 to XEQT immediately and let yourself spend the other $250.

You will never miss the money you redirect before adaptation sets in. I promise you this. I have done it with every raise since 2021, and not once have I felt deprived. You cannot miss what you never got used to having.

I covered the mechanics of this in detail in my post on lifestyle creep, but the psychological framing is different here. With lifestyle creep, the issue is spending too much. With the hedonic treadmill, the issue is that spending more does not even make you happier – so you might as well invest it.

2. Track Net Worth, Not Income

Most people define their financial progress by their salary. “I make $90K now” or “I just cracked six figures.” But salary is a hedonic treadmill metric – it feels great when it goes up, then you adapt, and you need another raise to feel good again.

Net worth is a different kind of number. Watching your XEQT portfolio grow from $20,000 to $50,000 to $100,000 to $200,000 provides sustained satisfaction because each milestone represents more security, more freedom, more options. You do not adapt to freedom the way you adapt to income, because freedom is not a static state – it is a capability that gets tested and reaffirmed regularly.

I check my net worth once a month. I check my salary… I honestly do not remember the last time I thought about my salary outside of tax season. That shift in attention – from income to net worth – has been one of the most psychologically healthy changes I have made.

3. Use the 48-Hour Rule

Before any discretionary purchase over $200, wait 48 hours. This is not a budgeting hack – it is a hedonic treadmill hack. The initial excitement you feel about a potential purchase is the peak of the hedonic curve. If you buy immediately, you are paying full price for an emotion that is about to depreciate rapidly.

After 48 hours, one of two things happens. Either you still want it, in which case go ahead – you are making a considered decision rather than an impulsive one. Or the desire has faded, which proves the hedonic treadmill would have erased the pleasure of that purchase almost immediately anyway. Either way, you win.

I have saved thousands of dollars with this rule. Not because I never buy things, but because at least half the time, the 48-hour waiting period reveals that the desire was entirely temporary. The thing I was about to buy would not have made me happy for more than a few days. The $300 stays in my account, gets swept into my XEQT contribution, and buys me something that actually lasts: security.

4. Redefine “Rich”

The hedonic treadmill thrives on a specific definition of rich: a high income, nice things, visible markers of success. By that definition, you will never be rich enough, because every achievement gets absorbed by adaptation and you need the next one to feel the same way.

Try a different definition. Rich is “I could stop working for two years and be fine.” Rich is “a surprise $10,000 expense would be annoying but not stressful.” Rich is “I stay at my job because I want to, not because I have to.”

By this definition, the path to rich is not a higher salary – it is a bigger XEQT portfolio. And the beautiful thing about this definition is that it resists hedonic adaptation, because the freedom it describes provides value that renews itself every single day.

5. Practice Gratitude (Seriously)

I know. It sounds like something from a wellness influencer’s Instagram story. But hedonic adaptation works in reverse too – you can deliberately re-appreciate things you have already adapted to. Research by Sonja Lyubomirsky and others has shown that gratitude practices genuinely slow down hedonic adaptation, helping you extract more sustained happiness from your current circumstances.

This does not have to be a journal or a meditation practice. For me, it is as simple as occasionally pausing and noticing: I have a warm apartment. I have food in the fridge. I have an XEQT portfolio that is growing. I have options that past-me did not have. That brief moment of recognition interrupts the treadmill. It reminds my brain that things are good right now, without needing the next upgrade to feel that way.

The XEQT Happiness Framework

Based on the research, here is how I think about the relationship between income, happiness, and investing at different stages.

Below ~$100K CAD Household Income

At this level, earning more money produces real, meaningful improvements in day-to-day wellbeing. Financial stress is a genuine source of suffering, and reducing it through higher income makes a tangible difference. Focus on increasing your earning power – career development, skill building, strategic job changes. Invest what you can in XEQT, but do not feel guilty if the amount is small. The priority is getting your income to a level where basic financial stress is no longer a constant presence.

$100K-$200K Household Income

This is the treadmill zone. You earn enough that further income gains produce diminishing returns in day-to-day happiness, but the hedonic treadmill is working at full speed to absorb every dollar. This is the income range where the gap between “what you earn” and “what you invest” determines your entire financial future.

Maximize your XEQT contributions here. Every dollar you invest instead of spend is a dollar that buys lasting security instead of temporary pleasure. Use the Raise Split strategy – invest at least 50% of every raise. If you can invest 75%, even better. The lifestyle improvements you forgo in this range would have faded within months anyway. The portfolio growth will not.

Above $200K Household Income

At this income level, the marginal utility of additional spending is very low. The hedonic treadmill adapts to luxury almost as fast as it adapts to comfort. The difference between a $60 dinner and a $120 dinner, in terms of lasting happiness, is essentially zero. The difference between investing that extra $60 and spending it, compounded over 20 years, is enormous.

Invest aggressively. Max out your TFSA, max out your RRSP, consider taxable accounts. Every extra dollar directed into XEQT at this income level buys more freedom than any purchase you could make with it. You have already bought all the comfort that money can buy. Now buy the freedom.

My Experience

I want to close with something personal, because I think it matters more than the research citations.

I have had several salary increases over my career. Some of them felt life-changing in the moment. None of them changed how I feel about my life in any lasting way. The $55K-to-$75K jump was thrilling for about six weeks. The next one was exciting for maybe a month. By the time I crossed $100K, the raise barely registered emotionally – I just recalculated my budget and moved on.

But watching my XEQT portfolio grow has given me something no raise ever did: a quiet, persistent sense of calm.

When my portfolio hit $50,000, I felt a subtle shift. I stopped catastrophizing about unexpected expenses. When it crossed $100,000, something deeper changed – I started thinking about my job differently. Not as a trap, but as a choice. I stay because I find the work meaningful, not because I am terrified of what happens if I leave. That distinction matters more than I can express.

I now have more than two years of living expenses invested. I do not think about it constantly. It is not a source of daily joy or excitement. It is more like knowing there is a fire extinguisher in your kitchen – you do not think about it until you need it, but the knowledge that it is there changes your entire relationship with risk. You cook more ambitiously. You worry less. You live a little more freely.

That is what the hedonic treadmill research predicts, and it is exactly what I have experienced. Income gains fade. Purchase happiness fades. But the security of a growing portfolio – the options, the freedom, the ability to absorb shocks without panic – that does not fade. Because it is not a one-time event. It is a condition. And conditions that provide ongoing value resist hedonic adaptation in a way that events cannot.

If you are on the treadmill right now – earning more every year but feeling no richer, working harder but feeling no more secure – the answer is not a bigger raise. The answer is getting off the treadmill entirely and building something that actually lasts.

For me, that something is XEQT. Boring, diversified, automatic, and quietly buying me the only thing money can reliably purchase: freedom.

Related Reading

• Lifestyle Creep Is Stealing Your Wealth
• The Savings Rate Secret
• Present Bias and XEQT
• The Boring Middle of XEQT Investing
• Why You Feel Behind Everyone Else Financially

Disclosure: This post contains referral links. I may receive compensation if you sign up. Research cited includes work by Brickman & Campbell (1971), Kahneman & Deaton (2010), Killingsworth (2021), and Dunn & Norton (2013).