In most cases you should never settle for less. Always strive for the best outcome in all areas of your life and work.
If you already dedicate time and effort towards something, you may as well do your best. The results from doing so significantly outweigh the increased demand.
You'll see huge gains when you apply this to all areas of your life, resulting in a huge increase in general satisfaction and happiness.
When you shouldn't settle
Ideally you should strive to optimise all areas of your life. You might think the effort outweighs the benefits, but once you establish solid habits it's actually pretty easy.
At the very least you should identify what you value most, then dedicate yourself to optimising those areas of your life as much as possible. Doing so will effectively maximise your happiness.
For instance, you might value having a career you love, being healthy, and having great friends who you can rely on. Achieving these things would ensure your happiness because they're what you value most.
On the otherhand, if you were to settle for a job that doesn't satisfy you, an unhealthy lifestyle, and unreliable friends who you don't really connect with, you'd be unhappy. Settling for less would lead to resentment and unsatisfaction because your standards aren't aligned with your values.
It's worth mentioning there's things people think will make them happy which actually don't, such as being insanely rich. Therefore you need to consider Maslow's Hierarchy of Needs and honestly assess whether your perceived values are legitimate.
When you should settle
Of course, like all things there's exceptions. Sometimes it's practical to compromise in the short-term, but you should never compromise in the long-term.
If settling for less in the short-term is a pragmatic stepping stone towards your ultimate goal in the future, then by all means do it. What matters is you don't settle for less in the long-term.
If you're unhappy with any area of your life, it's a sign things need to change. The reason you're unhappy is probably because you value it and aren't living in alignment with your standards.
So don't settle for less, or those regrets might come with you into your deathbed.