How much I spent on an engagement ring (or the Five Cs: Carat, Cut, Color, Clarity, and Costco)

Welcome to the fifth post of The Invested Counsel—thoughts about financial planning for young lawyers.

Last week’s post gave an overview of how summer associates should handle their income. This week goes into detail on one particular expenditure I made with the money I earned as a summer associate in 2010.

I got engaged to my (now) wife 16 years ago this past Saturday. I proposed on the Fourth of July, on a day my father would have described in his sophisticated, cosmopolitan argot as “hot as balls.” Like a chump, she said yes, and we got married two years later.

True to form, I gave her a traditional (read: boring) engagement ring—one I paid for with my summer associate income. It cost about $10,000, or about one third of the gross income I made that summer (and of course an even greater percentage of my post-tax net income). And like any romantic, I bought it at a Costco.

Was it worth it?

The easy answer is yes. My (now) wife said yes, we got married, and we are still married. Scoreboard. Also, my wife (claims she) liked the ring, and still (claims she) likes it . . . even though she basically never wears it.

But it’s trickier to determine whether the $10,000 I spent was worth it. The ring is almost certainly now worth less than the $10,000 I spent on it. With inflation, the $10,000 I spent in 2010 would be worth about $15,000 today. If I had invested that money in the stock market, it would be worth closer to $90,000 today (an unusually good return, because of how the market was still down in 2010 as a result of the financial crisis). If I had used that money to pay down my student loans, depending on the strategy, it would have been worth somewhere between the $15,000 and the $90,000.

On the other hand, that is true of every expenditure we make. I would be much wealthier if I lived in a box and ate beans from a can. But I don’t much envy bean/box Zach. And in the grand scheme of my career, the money I made as a summer associate was just a fraction of what I earned while I was a lawyer.

As I mentioned last week, I ended up spending the summer living out of my father’s dental office, saving the money it would have cost to rent an apartment in Manhattan. I seem to recall the available apartments I looked at costing $2000-$3000 per month, so I saved maybe $6000-$9000. That is approaching the cost of the ring. Maybe the ring, which still exists 16 years later, is a physical manifestation of my schlepping out to Nassau County for ten weeks in 2010. While diamonds may not be forever, they tend to last a lot longer than many other purchases, and so from that perspective maybe it was a “good” investment.

Diamonds and the $1.50 hot dog lunch.

A diamond in an engagement ring is evaluated (and priced) based on the “four Cs”: cut, color, clarity, and carat. (I don’t remember what the exact specifications were for the ring I bought, except that it had a slight phosphorous imperfection, which purportedly made it more likely to “glow” and thus was marketed to me as a positive instead of a negative.)

But I ended up buying my ring at the Costco near where I grew up on Long Island. We (my parents and I) went to Tiffany’s to look at rings, and it was clear that I could get a better diamond (better C, more C, etc.) at Costco for the same price. And so in the manifestly irrational context of buying one tiny shiny rock over another tiny, shiny rock, rationality won out.

Or did it? The value of the ring is entirely psychological. It doesn’t do anything, and the differences between the ring I could have bought at Tiffany’s and the one I did buy at Costco were, at almost any viewing distance, indistinguishable. Buying the ring at Tiffany’s would have added a pale blue patina of class and sophistication that you can’t get by buying a ring across from a display wall of tires.

Breakfast at Tiffany’s

Lunch at Costco

But buying the ring from Costco does give something else—a (maybe) amusing detail that says something about who I try to be (unpretentious, rational, untraditional, slight sense of humor), and who I think my wife is (hopefully the same, though at the time I was at least a little nervous that she would think it was cheap for me to buy the ring at Costco). On the other hand, the Costco detail is a detail that is in many ways swamped by the larger, more traditional narrative of my proposal (i.e., spending an enormous amount of money, while in an enormous amount of debt, on something that does nothing, earns nothing, loses value, all without discussing it at all with the person who would receive it). There is a tension there, and you can make of it what you will. (Though according to my wife, she had no affection for Tiffany’s, so she would not have derived any psychological utility from it coming from Tiffany’s. Phew.)

How much should you spend on an engagement ring?

I don’t know. When I was deciding how much to spend, I heard the guidance of three months’ salary. And then I heard that that guidance was invented by the jewelry industry, and that I should ignore it. Moreover, three months’ salary doesn’t make sense in the context of a summer associate, where your income comes in over 10 weeks, and then you go back to law school.

But that leaves a potential buyer with no guidance as to budget. I’m not going to give any guidance on how much (if any) to spend on an engagement ring. But when you are developing your budget, you should be thoughtful:

It should reflect your economic situation. The amount I spent on the ring necessarily reflected where I was in my career. I probably would have bought something different if I had proposed as a 1L, or as a clerk, or as an associate. And that makes sense. But if you can, resist the pressure to scale up your budget in line with your income. The easiest way to develop wealth is to let your income increase faster than your expenses.

It should reflect your values. For some people, a ring is important. For some, it is not. If something else is more important (the wedding, a home, etc.), adjust your spending accordingly (including, if it works for you, to zero), so that it is in line with what is actually important to you.

Of course, the values that should be reflected should be the values of both the giver and the recipient. I wonder how many people (and in particular, how many readers of this blog) would ever make this sort of purchase for a partner without discussing it first. It seems like that is less common now than in the past, but I have no idea whether or not that is true.

It should not reflect other people. What you spend on an engagement ring will likely be influenced by the overlapping communities of which you are a member. And those may be coinciding or contradictory, and may create expectations that are reasonable or not. For example, when I bought the ring in 2010, my wife and I were both in our mid-20s, were both college graduates doing more schooling, and both wanted to end up in New York. At the same time, we came from different communities (lawyer versus playwright). And nowadays, there is the overarching community of everyone on social media. It is easier than ever to compare yourself with people who appear to be in your community (since you see details of their lives online) but really are not.

My recommendation for dealing with that is not to deal with it—ignore everyone else. They are not you and your partner. For the most part, they don’t care much about what you are doing, and will not be affected by the decisions you make. What other people think (or, more accurately, what you think other people think) does not matter. If you can do your own thing (whatever that ends up being), that will put you in good stead going forward. And if you can keep doing that throughout your financial life, you will do fine.

Be thoughtful about your irrationality.

Even when a money decision is irrational, it should be thoughtful. Some view engagement rings as a necessity, and others see them as pointless. For me, the ring is a tiny thing that sits in a box in [HIGHLY CONFIDENTIAL, ATTORNEYS’ EYES ONLY], doing nothing. Or it is the best investment I ever made.

That’s all for now. Have a wonderful week.

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