In 2008, singer-songwriter, Beyoncé, debuted her engagement ring. At 18 carats, it is one of the largest diamond engagement rings ever worn by a celebrity. The price tag: $5 million. Since most of us cannot afford such an extravagant purchase, you may be wondering how much to spend on an engagement ring that is reasonable and within your budget. The answer involves a lot of careful financial planning and investigation into the type and style of ring you want to buy for your future fiancé.
The History and Myths
The history of engagement rings dates back centuries. In ancient Rome, women wore rings with keys attached, possibly to show that they were bound to their husbands. The first well-documented example of an engagement ring purchase is from Archduke Maximillian of Austria in 1477, who bought Mary of Burgundy a diamond ring. Of course, diamonds were just one of many different gemstones used throughout the ages; however, their popularity rose sharply with a De Beers advertising push in the 1930s and 1940s which convinced the American public that “A Diamond is Forever.” The idea that a strong stone could indicate a strong, lasting marriage was a well-received notion. Suddenly, the percentage of engagement rings featuring a diamond increased from 10% in the late 1930s to over 80% by the end of the century.
Along with the rise in popularity of the diamond engagement ring came the myth that a person should expect to spend three months’ salary. This idea also arose thanks to the De Beer’s advertising campaigns over the last several decades. Whatever the amount: one, two, or several-months’ salary has become the expected financial burden placed upon the ring buyer. A BBC article on the topic highlighted an engagement ring ad from the 1980s that states, “Two months’ salary showed the future Mrs. Smith what the future would be like.” This hints that a bigger and more expensive ring is an indicator of ones future financial security.
However, nothing could be further from the truth. The size and cost of the ring does not have to matter. The amount to spend on an engagement ring should be a discussion between couples. If the person buying the ring wants to keep it a secret, then they should have a conversation about finances with a knowledgeable individual at a bank, lending company, or even a family member. Then, compare your budget to the type of ring you want to buy. Remember: insurance is also an important consideration. Let’s discuss each of these three aspects of ring shopping in more detail.
Figuring out how much to spend on an engagement ring goes beyond the ring purchase itself. It is best to have a conversation with your future spouse to discuss how the cost of the ring factors into your future financial plans. This includes the wedding, honeymoon, and beyond. If you want to start a family or buy a house right away, then the cost of the ring should certainly factor into your broader budget.
In addition to considering future plans with your loved one, devise a list of all current expenses: monthly rent or mortgage fees, car payment, student loan payment, credit card payment, and utilities. Some people save for the entire cost of the ring before they purchase, but many do not. If you are hoping to pay in installments, then consider how much you can afford on top of your expected monthly budget. Maybe you only have $100 to spend each month out of pocket for the ring. Be aware that many jewelers have financing plans available, often with appealing offers of zero interest for the first few months or even a year. However, if you fail to pay off the rest of the ring before the offer ends, then you may be stuck paying very high interest rates. Having a budget will certainly factor into the size and quality of the ring. However, it is best to know this information ahead of time, rather than after you already have your mind set on the largest ring in the store.
While there are no requirements for how much you should pay for a ring, it certainly helps to know that the average American does not adhere to the three-months’ salary myth. In fact, according to a 2014 BBC article, the average amount spent per ring was $4,000. When comparing this to the average salary of $37,000 per year, that equals approximately one-months’ salary. It should be noted, however, that this is the average salary for all Americans, and your personal finances might be much different. Try not to make comparisons between your budget and other ring shoppers. Find a ring you like that has a reasonable price tag.
Before making the big purchase, try to get a gauge on your loved one’s expectations. Do they want a large stone? Is there a particular cut they prefer? Do they want a solitaire or several smaller stones on either side of the main diamond? What type of metal should you use for the band- gold, white gold, platinum? You can either ask your loved one outright, or ask their friends and family for ideas. Once you have a better understanding of what they want, you can start shopping.
If your future spouse is expecting a diamond ring, remember the “four C’s”: carat weight, clarity, cut, and color. Diamonds with a higher value (and therefore a higher price tag) will have a larger carat size, brighter clarity and color, and a nicer cut. You may want to consider a smaller diamond with fewer flaws and color distortion, rather than a large stone with several issues. If you still want to buy a larger diamond, experts recommend buying a stone that is just below certain benchmark sizes. For example, if you want a 1-carat diamond, consider one that is 0.92 carats instead. This will be nearly indistinguishable in size, but will save you money.
There are other options aside from diamonds that can be just as appealing, but will be easier on your wallet. Many other stones, whether natural or manmade, look just like diamonds. For example, white diamonds are grown in a lab, but are “physically and chemically identical to natural diamonds” and have a much lower price tag. Moissanite is a naturally occurring crystal found in meteors that is just as strong as a diamond, but actually shines much brighter. Usually, you can purchase this gem for 1/10 the price of similar-sized diamond. You might also want to choose a different precious gem that stands apart from everyone else like a ruby, sapphire, or emerald. These stones are significantly cheaper than diamonds as well.
When planning your budget, make sure to account for the cost of an engagement ring insurance plan. You don’t want to spend thousands of dollars on a ring, only to have it stolen or a stone fall out of its setting. There are two basic coverage options: an extension (also called a rider) on your homeowners or renters insurance and a separate personal articles policy. If you already have homeowners or renters insurance, your policy will have limits on personal property coverage. In the event of a loss, you may only be reimbursed between $1,000 and $2,000. It is likely that you will spend more than this on the engagement ring, so an extension will provide coverage for the entire appraised value of the ring.
The second option is to purchase a separate personal articles policy that is specifically for the engagement ring. You can either purchase this through an independent agent who also sells home, auto, and life insurance, or through a specialized jewelry insurance provider. This type of policy might provide more coverage than a rider.
In either instance, make sure you have the ring appraised and that you speak with an independent insurance agent. Find a certified gem expert to examine your ring and determine its value. Your insurance company will want to know an approximate value in order to ensure that you have enough coverage. Every few years, have the ring reappraised. Likely, the value has increased. In addition, set up an appointment or call an independent insurance agent. They will have the knowledge and experience necessary to recommend the right insurance product for your engagement ring, no matter your budget.
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