How much should you spend on the perfect engagement ring? ($50,000 is ok)

Shopping for an engagement ring feels a bit surreal. It is one thing to think about marrying your partner and thinking how lucky you are. It is a very different story to ask for permission from his or her parents and take concrete steps to prepare the perfect proposal.

I vividly remember my proposal to my now fiancée as it happened not so long ago. And, yes, we are currently planning the wedding and this is a story for another blog post.

When you start shopping for an engagement ring, it is best to do some research prior to visiting jewelry shops. There are two benefits in doing so: 1) your newly acquired knowledge will boost your confidence level and 2) the shop assistant will realize that you know the basics and is less likely to rip you off.

So how much should you spend? Well, personal circumstances vary but I paid over $50,000 and I’m fine with that.

 

Diamond buying guide – the 4Cs

The quality of a gem will drive its price. The quality of a diamond is determined by four factors: color, clarity, carat, and cut. Some would argue that this order also reflects the impact that each feature will have on the price although this is up for debate.

The features of the diamond will be summarized in a certificate. Certificates from the Gemological Institute of America (GIA) are widely recognized by the industry. GIA grading of a gem is the most popular and safest way to measure the characteristics of the gem.

What I did: When I bought my stone, I only considered diamonds that had a GIA certificate. That would be most stones so it won’t narrow down the choice you have.

 

Colour: gems range from colorless to light yellow. A colorless diamond is a chemically pure diamond similar to a pure drop of water and will command a higher premium on the market. GIA’s D-to-Z color-grading system is the industry’s most accepted grading standard. A colorless diamond will be graded D-E-F while a light yellow diamond will only receive a S-Z grading. Some of the color distinctions are almost invisible to the naked (and untrained) eye. Yet, they can make for very big price differences.

 

Clarity: the number, size, and position of inclusions and blemishes determine a diamond’s clarity. Natural diamonds are created by the exposure of carbon to tremendous pressure and heat, which can leave inclusions (internal marks) and blemishes (external marks). No diamond is perfectly pure. Nonetheless, the fewer inclusions, the higher the clarity and the higher the price. Diamonds with top clarity will be graded FL – Flawless – and IF – Internally Flawless.

 

Carat: carat weight is probably the better-known factor when it comes to picking a diamond. Carat weight is the measurement of the weight of the diamond. Purchasers will often focus on the size of the gem and ignore its other features, which are probably more important. A “carat” is defined as 200 milligrams. A 1.5ct diamond is very respectable especially if its other attributes are close to the top of the grading scale.

Diamonds in the United States tend to be bigger in terms of carat size but with lower attributes such a poor color or clarity. Those diamonds are typically “flash-for-cash” diamonds: all your money is spent on your attribute – the carat weight. As most American people can’t afford a colorless (D) and perfectly clear (FL) 3.0ct diamond, they will still purchase a 3.0ct diamond but will sacrifice colorless (K or L for instance) and clarity (SI2). The gem is big but it’s not worth as much as its size implies. In Europe, people tend to go for smaller stones with higher attributes.

 

Cut: it would be a shame to buy a very clear, colorless, diamond with a terrible cut. The quality of the cut will determinate how well the diamond can transmit light and sparkle intensely. In other words, how well can the facets of the diamond interact with light? GIA defines the cut based on three features: brightness, fire, and scintillation. In shops and online, however, you may not get that many details. Often, the cut will be described as “excellent” and “very good” (two excellent options) or as “fair” or “poor.”

 

What I did: I recommend that you have a holistic approach to choosing a diamond and its attributes. Aim for the best to get an idea of how much will this cost. Then, you play around and reduce the quality of the color or pick a smaller stone. I initially wanted something above 3.0ct. However, this meant taking a bit of a step-down with color and clarity. I settled for something just under 3.0ct with a color graded E and a clarity graded IF for over $50,000. To get a diamond for the same size with a D color and a FL clarity would have cost another $15,000 to $20,000 (assuming you could find such a diamond!).

 

“You definitely went over your budget!”

Actually, I did not. The initial budget was almost $60,000 so this is a steal!

Some people will say that paying that much money for a rock is ridiculous, especially when you are running a personal finances blog! I get it.

Let me just say two things: (1) money is here to serve you, not the other way around. This was a special moment in my life and I wanted to get it right the best I could, and (2) I saved hard and paid cash. No credit cards, no debt at all.

This purchase does not jeopardize my finances at all as I had budgeted it. When you think about it, this is almost like making an investment. Instead of buying a stock, you are buying a gem. If its attributes are good enough, it could amount to an investment. This was not my primary objective but I did keep this in mind too.

Forget the rule of spending “three times” your (gross or net?) salary. Set your own objectives. If you save long enough with discipline, you can easily spend more than three months. If you are set on retiring in three years, then think twice and try to discuss it with your partner.

Here is what I would say: it is hard to pay less than $10,000 (setting included) if you want a decent sized stone with quality features. Above $50,000, it gets difficult to let your fiancee walk around with so much money around one finger. She becomes a target and your insurance policy might have severe restrictions on where and when to wear the ring. Over $100,000, you are not buying an engagement ring: you are instead making an investment into a long-term asset, which happens to be an exceptional gem.

 

How much is a one-carat diamond engagement ring?

On James Allen, a top-notch 1.00ct D-IF Emerald Cut Diamond costs $7,680.

The price of a diamond does not proportionally increase with better attributes. In other words, a 3.00ct D-IF Emerald Cut Diamond will not cost you three ties $7,680 but north of $70,000! Moving one notch on the color or clarity scale will also result in a significant jump in price!

 

There are thresholds where the price per carat jumps: 1.00, 1.50, 2.00, 2.50 and anything above 3.00. The price per carat of a 2.50 will be significantly more expensive than a 1.50 with the exact same features because the bigger the diamond, the scarcer it is. The price increase is exponential.

 

Should I buy from a well-known brand?

There is nothing wrong to buy an engagement ring from Cartier or Tiffany. Simply be aware that you will pay a massive premium for the privilege of buying the ring from a well-known brand. If your girlfriend indicated that she wants a specific model from Tiffany, then you might have no choice but to go there.

However, if you are lucky enough to not have such a constraint, then your objective should be to maximize purchasing power and cost-effectiveness (i.e. quality-price ratio). Remove the Cartier brand and the price could easily be divided by two. I went to a Harry Winston branch in Los Angeles a couple of years ago. A three-carat emerald cut cost almost $200,000 (the state-wide California sales tax is 7.25%). On websites such as James Allen, you could get a similar diamond for $75,000 – $80,000. The Harry Winston box looks very pretty but it is certainly not worth over $100,000!

In any event, do have a look in shops to get a feeling of how big or small one carat is. You can also compare color and clarity to see if you want to make the extra investment.

 

What I did: I ordered the diamond and picked the setting on the James Allen website. I initially wanted to order on another website as they had been around for a bit longer but I found the choice and pricing of gems to be better on James Allen. The customer service was very good. I don’t expect customer service to fix everything (although they should try) but I do expect them to be responsive. The James Allen customer team always responded promptly and that brings a lot of comfort to ordering online a diamond that you have never seen. The order shipped on time and I was happy with the setting. If you do not like what you received, you can request a refund within 30 days.

 

An important note to readers in the UK on prices and VAT

When I ordered online, I ordered from the US website for a few reasons. First, I thought that the pricing was better. For some states, James Allen will not charge sales taxes. If you ordered online and shipped to New York, you would have to pay sales taxes. If you however shipped to California, you avoid the 7.5% sales tax, which is not negligible. In any event, it ends up costing less than the 20% VAT rate in the United Kingdom. Second, I needed to have the ring shipped to California as I intended to propose there. Third, I had a lot of dollars in my US account and it made sense to use them as they were readily available for that purpose.

When ordering online from the UK site, VAT will usually already be incorporated in the final price. If you are shopping on the US website and then shipping the engagement ring to the UK, then be careful! You will be charged 20% of VAT payable to HMRC (plus any costs and handling fees to FedEx or UPS). This is obviously a significant amount so avoid any bad surprises when it comes to receiving the ring at delivery. As your circumstances are unique, read the fine print and reach out to customer service (whoever you decide to use) as policies in relation to VAT may vary.

 

Which finger do you wear an engagement ring on?

This is not exactly related to personal finances but it is definitely useful to know! If she says yes, at least make sure you know which hand or finger to put the diamond on!

In most countries, the engagement ring is apparently put on the fourth finger of the LEFT hand. This finger is called the ring finger. Apparently, in old Egypt, people thought the left hand had a vein that ran directly to the heart (vena amoris, i.e. vein of love)!