It’s that time of year when you see a lot of fellows sweating over whichever engagement ring price rule to follow and eventually genuflecting in the ultimate public display of vulnerability: popping “the question”. If he’s lucky, the person being asked will grant him a lifetime of happiness and fulfillment. And if you’re the unsuspecting (or perhaps tired of waiting) person, this could end up being your favorite time of year.
That’s because this is the most popular period for engagements: the holidays. And I should know, because I looked for an engagement ring and proposed to my now-wife two years ago around Christmas.
Before answering that fateful question though, part of the mental calculus of the person being asked could involve what rests inside the box presented. It’s a daunting task for the proposer because he must choose the ring perfectly-suited for his spouse-to-be. So what are some of the common considerations people make when buying that perfect ring?
Current Engagement Ring Price Rule of Thumb
Spend Three Months Gross Salary Rule. This engagement ring price rule requires the proposer to buy an engagement ring worth three months of salary. To demonstrate, if the proposer makes $75,000 per year, the engagement ring should be worth $18,750. That’s quite a price tag to accompany an engagement ring.
And does this engagement ring rule of thumb consider total compensation? What if there’s an additional 10% bonus earned that year? Would the total ring need to be worth $20,625? If you adjust this for taxes, this reflects something closer to 1/3 of the proposer’s take home pay.
If the order for financial events in marriages were reversed and you owned your home, had secure retirement funds, kids were done with college, and you had the vehicles you need, then this rule seems fine. If you’ve got everything financially taken care of and have extra money to spend, go ahead and follow this engagement ring price rule of thumb.
There’s no harm in spending on the things you find worthwhile. But seeing as how time progresses chronologically, it might be best to proceed cautiously on how much you choose to spend on an engagement ring.
After all, if you don’t have these things already and you have to go into debt to finance the engagement ring, I hope the recipient understands the debt will soon be shared by both people.
So, if there are high expectations for the proposer to deliver an extravagant ring to demonstrate worthiness of the recipient’s affection, it should be pointed out the recipient will end up paying for the ring as well. In effect, this is like buying a gift for yourself if you both have to pay for it.
Are High Expectations Unavoidable? Then Be Smart About Buying the Ring
If you can’t avoid delivering the ring to match the three months gross salary engagement ring rule of thumb above, you’re still in luck. No one stipulated the ring had to cost three months of the proposer’s gross salary. Perhaps we could tweak the rule to fit a new requirement where it must be worth three months of salary.
If we incorporate this nuance, the price tag becomes more forgiving because you can move up the value chain to a wholesaler or broker and cut out some unnecessary profit margin. This leaves more money in your pocket.
Or, you could look online because the greater competition lowers prices and has a higher potential to avoid paying sales tax (10% on a $15,000 ring is a considerable expense).
When I looked for my wife’s engagement ring, I looked far and wide to find a good deal on a great diamond. First, I chose to focus on the stone and would worry about the band after.
I looked online to get an idea of what was available. Prepare to read a lot about the 4 C’s (cut, carats, color, and clarity) of diamond quality. I comparison shopped these online stones to ones available in retail stores like Kay Jewelers, Tiffany’s and an upscale local jewelry store.
There are different independent certifying agencies which review individual stones to rate them on the 4 Cs and provide assurance the stones are what retailers claim. The most followed certifier, the Gemological Institute of America (GIA), issues certificates with a diamond grading report.
These reports allow you to have reasonable certainty the stones you browse online or in stores will be of verifiable quality. James Allen offers enhanced 360 degrees views with magnification options of the stones so you can really see the stones up close.
I found no one else online who offered this feature. Despite the reports, when you’re spending this amount of money, you’d like to see a nice visual of the diamond before making your purchase.
I spent a considerable amount of time sorting through stones online and found a handful which met my criteria. But before moving forward with my purchase, I wanted more options given the importance of the ring.
I heard from an acquaintance how going through a broker might provide a better selection and price point. After spending numerous hours online, I figured it would be worthwhile in my due diligence to seek one out.
How Much Should I Spend on an Engagement Ring? It’s the Inventory that Counts
I met with the broker about a month in advance of my intended proposal to lay out my diamond specifications. He had a few on hand, but none were the right cut. After a week, he managed to procure an oval cut diamond which met my needs.
When we began discussing pricing, I couldn’t believe the markup I would have paid for a similar diamond at an in-person retailer. I saw comparable diamonds online for a bit more than I paid at my broker but they were snatched up before I could act. It is that time of year, after all. Competition is fierce. Buying online would have been a great choice if I didn’t find the perfect diamond from the broker.
After choosing to move forward with the broker’s diamond I had him mount it on a simple band with a basket mount. I felt satisfied with how the process went and couldn’t have been happier with the stone I found. Going in, I felt so apprehensive about the process and scared I’d make a mistake on one of the biggest decisions of my life.
Fortunately for me, after a 20-something mile, 4-day hike along the Inca Trail to Machu Picchu, complete with 5,000+ foot altitude changes and 30 pound packs, my wife accepted my proposal.
Don’t Skimp Out, But Don’t Go Into Debt
Engagement rings have a lot of marketing to promote them as the most important part of a proposal. And while they represent a crucial component, the most influential determinants should be how much the couple loves each other and how compatible they are over the long-term.
The ring should only serve as an outward symbol of their love. If the couple feels a larger stone is necessary to accomplish this, so be it. There comes too much negative judgment with this decision.
When choosing an engagement ring:
- make sure both parties are satisfied with the ring,
- you don’t finance it with high-cost debt (no credit cards, please), and
- it will last a lifetime.
If it takes 3 months of gross pay to meet the grade, then let it be. Look online at a retailer like James Allen or try to find a reputable broker in your area. Both options could lead to some real savings on your best engagement ring.
Personally, I know my wife LOVED the engagement ring I got her, but she LOVED it even more that I had a cost effective way to get the ring of her dreams.
About the Author and Blog
In 2018, I was winding down a stint in investor relations and found myself newly equipped with a CPA, added insight on how investors behave in markets, and a load of free time. My job routinely required extended work hours, complex assignments, and tight deadlines. Seeking to maintain my momentum, I wanted to chase something ambitious.
I chose to start this financial independence blog as my next step, recognizing both the challenge and opportunity. I launched the site with encouragement from my wife as a means to lay out our financial independence journey to reach a Millennial retirement and connect with and help others who share the same goal.
Some of my favorite things to discuss include investing in index funds, how to save money, travel hacking with help from the Reddit churning community, house hacking and optimizing the benefits of my condo vs. apartment living, and tax topics like the earned income tax credit, common tax deductions, tax reform in 2018, or other useful tax topics. I want this to be a journey for us all to learn how to make a lot of money and pursue the lives we want.
Please continue to watch the site for more to come and post below with your questions or comments.
I have not been compensated by any of the companies listed in this post at the time of this writing. Any recommendations made by me are my own. Should you choose to act on them, please see my the disclaimer on my About Young and the Invested page.