Buying a Diamond: Should You Finance the Love of Your Life? |
Two and a half years ago, I did something that would make many personal finance gurus scream. I took out a home equity line of credit to buy a diamond ring. I put my home on the line so that I could show the woman I love that I wanted to spend forever with her.
Before we get into that decision, I want to note a few things about the diamond industry in general. The reason a diamond is worth as much as it is today is due, in part, to two things - a great marketing campaign by De Beers combined with their ability to limit production through a near monopoly. Secondly, diamonds and precious metals are two very expensive things that serve tangible purpose for the average individual. You can’t watch American Idol on them, they don’t keep you warm in the winter, and they don’t transport you from one location to another.
If you can’t tell, I’m not really a fan of the diamond industry. So why would I go through such drastic measures as putting my home on the line to buy my girl’s engagement ring? There were a couple of factors
to consider:
- As much as I hate to admit to admit it there’s a social and cultural aspect to getting engaged nowadays. When four of friends have gotten their future wives big shiny rocks, there’s no way to not
do the same without looking cheap. Put another way, because everyone else has jumped off that bridge, you are expected to as well. - It made financial sense. I knew that if we were engaged my future wife would not have a problem with moving in with me (we had discussions about moving in together in the past). However, as my girlfriend, I could see how she’d want a sign of commitment before making that big step. Moving in together saved us each quite a bit of money. My future wife could rent out her own home, covering her mortgage, condo fees, and property taxes. We would share the costs of living in one place, which reduced my mortgage payments and utility bills (especially telephone and cable television). I did the math and found that I would break even financially after about 7 months of
living together. After that we’d be saving money each month.
Taking those two factors into account, I took the plunge - a slow, calculated plunge. I went to learn everything there was to learn about buying a diamond and it took me nearly three months. I started off at the Jewelry Exchange, a national chain that promises discount prices. I found their prices to be the best that I could buy locally. I looked on Amazon which had one of the
best diamond finding tools I’ve seen. I went to Costco and Blue Nile on a tip that I read in a newspaper. Those places had good prices, but not “the best” price. Here are the tips that lead my appraiser to exclaim, “I can’t buy a diamond of this quality for that price on the New York Wholesale Diamond Exchange!”:
- PriceScope Forums - These are great forums and people who have no vested interest will help a new person like me learn more.
- PriceScope Cut Adviser - If you have the dimensions of the diamond you can find out if it really is the great cut that a jeweler says it is. From the forums, I learned this is the most important “C” of the 4 C’s (carat, cut, clarity, and color).
- PriceScope Diamond Search - The last of my PriceScope links, allows you search many diamond retailers at once and compare prices. Yes, I bought my diamond on the Internet, but I made sure the company was publicly traded and in good standing with the Better Business Bureau. I also made sure that the people in the PriceScope forums have had great experiences with the retailer in the past. If you are doing this be very, very sure to get it appraised.
- Think about going with lesser color and clarity to save thousands. From a distance people notice the size, so that was important to me. The cut affects the way light reflects off the diamond and I felt that
to be very important as well. You can only notice that the diamond is of lesser color when compared to another diamond. I found that S1 clarity in many cases was a sweet spot where most people could see any imperfections with their naked eye and still cheap. - Buying a loose diamond on the Internet can save thousands, but it’s often wise to buy the ring and get it set locally. Having a local relationship with a jeweler is valuable. You may need to have the ring cleaned, polished, or serviced someday. You’ll want them to know your name.
When I was making the decision to finance my ring, a home equity line of credit got me the best rate - around a 7% interest rate at the time. While I was happy with that, I would have preferred not putting
my house on the line with a secured loan like that. Prosper wasn’t around at the time, but if it was, my good credit would have gotten an unsecured loan at 8-9%. If I had to do it again, the extra percentage point or two would have been worth it for piece of mind of knowing that my home was safe.
Is it right for you finance an engagement ring? I think you have to answer that question for yourself. One could quite easily question the decision to start off a life together in debt. On one knee, no one man ever says, “Here’s a symbol of the debt that I’m in. Would you marry me and my debt?” That said, I think there’s a happy medium to be found - and that might mean saving up money until the time is
right to propose.
—
Lazy Man has been a lender at Prosper since February 2006. He is the author of the personal finance blog, Lazy Man and Money and the health and fitness blog, Lazy Man and Health.
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