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You may have heard that you should spend three months’ salary on an engagement ring. But that rule of thumb (formulated and advertised by the diamond industry) is now considered pretty outdated.

Instead, it can be a good idea to consider not only your income, but also your savings, current debt, living expenses, partner’s preferences, other costs involved in planning the wedding, and (bottom line) what you feel comfortable spending.

How you plan to pay for the ring can also impact how much you can afford to pay for it. Options include saving up and paying cash, using a credit card, financing the ring through the jeweler, or using a personal loan. And, each payment avenue has its pros and cons.

What follows are some guidelines that can help you figure out how much you should spend on an engagement ring, along with options for covering the cost.

The Average Cost of an Engagement Ring

According to The Knot’s 2022 Jewelry and Engagement Study, the average cost of an engagement ring is around $6,000.

While that number may represent the average, the amount couples actually spend on a ring varies widely. In The Knot’s study, roughly one-third of respondents spent between $1,000 to $4,000 on their engagement ring, and 8% shelled out less than $1,000.

Why do rings vary so much in price? The cost of an engagement ring depends on a number of factors, including the size and quality of the stone, where the gem was sourced, how the gem is set, and the type of metal chosen (such as yellow gold, white gold, or platinum). There may also be markups that come along with a popular brand name.

Diamond engagement rings, sourced from a mine, tend to be the most expensive choice. But there are many other, less costly options, such as lab-grown diamonds, moissanite (a lab-grown gem that looks like a diamond), and semi-precious gemstones (such as tourmaline, morganite, and aquamarine).

Whether you’re in the market for a large, eye-catching dazzler or a more dainty design, the good news is that these days there are ways to accomplish almost any look for a range of price points.

Recommended: How to Plan a Wedding

How to Pay for an Engagement Ring

While paying in cash can be the simplest (and often the cheapest) option, it may not be feasible for all couples. Below are some other payment options that you may want to consider, along with their pros, cons, and potential costs.

Financing an Engagement Ring Through Your Jeweler

Many jewelers offer financing options, but just because you’re buying from a jeweler does not mean you have to use the financing they offer. It can be a good idea to take note of the following:

•   Promotional offers Some jewelers offer a 0% introductory interest rate during a set period of time. But after that period of time, interest rates may be very high.

•   Down payment requirements Some jewelers may require a certain percentage down payment prior to financing.

Financing through a jeweler directly may make sense if you’re confident you can pay back the loan prior to the end of the promotional period. As with any loan, it’s likely that there will be a credit check prior to being approved for financing.

Buying an Engagement Ring With a Credit Card

Putting a large purchase like an engagement ring on your credit card can be a simple solution at the moment, but may become a financial headache in the future. Here are some things you may want to consider before getting out the plastic.

•   Interest rate If you put the engagement ring on a card with a relatively high interest rate and don’t pay it off right away, the ring will end up becoming significantly more expensive over time. Also, keep in mind that many credit cards have a variable interest rate, which means the interest rate at the time of purchase could go up.

•   Credit-utilization ratio A large purchase like an engagement ring can mean using a significant percentage of credit available on your card. Having a high credit-utilization ratio may negatively affect your credit score.

•   Rewards and protections Some buyers like putting large purchases on credit cards because of the consumer protections offered by the card. They also may want to take advantage of the rewards offered by the credit card company. Those rewards, however, may only be worth it if you can pay the amount back in full at the end of the billing cycle or during a 0% interest promo rate.

Using a Personal Loan to Finance an Engagement Ring

A personal loan is another avenue for engagement ring funding. A personal loan from a bank, credit union, or online lender may have a lower interest rate than a jeweler financing program. Personal loans also typically have significantly lower interest rates than credit cards.

A personal loan also works differently than jeweler financing and credit cards. With a personal loan, you’ll get the money in your bank account and can then pay the jeweler as though you were paying in cash. You then pay back the loan (plus interest) in monthly amounts set out in the loan agreement.

Here are some things you may want to consider before using a personal loan to pay for an engagement ring.

•   Interest rate In many cases, a personal loan interest rate is fixed, meaning it doesn’t change after the agreement has been signed. This means that you know exactly how much you will need to pay back for the length of the loan.

•   Loan terms You may have an option to pick the length of the loan. Shorter loans may mean you’re paying less interest over time but have larger monthly payments.

•   Loan costs There may be fees associated with the loan, including an origination fee when the loan begins and a prepayment penalty if you pay off the loan before the end of the agreed-upon term.

•   “What if” scenarios Some lenders provide temporary deferment for people facing financial hardship, such as a job loss.

Recommended: Engagement Ring Financing Options

The Takeaway

Spending three months’ salary for an engagement ring is a long-standing tradition, but these days there is no one-size-fits-all formula for how much you should spend on an engagement ring. Ultimately, it’s a personal decision and will depend on your current and predicted income, current debt, expenses, savings, and preference.

If paying for an engagement ring upfront in cash isn’t feasible, you may want to look into different financing options and compare their pros, cons, and costs.

Your jeweler may offer financing, for example. Or, you may be able to take advantage of a credit card that has a 0% or low introductory interest rate and pay the balance off before the rate goes up.

Another option is to take out a personal loan. You may be able to find one that offers a more competitive interest rate than other ring financing options. You might also be able to fold in other upcoming costs as part of a wedding loan.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.

Photo credit: iStock/ljubaphoto

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One of the biggest student loan myths out there is that borrowers can’t combine federal student loans and private student loans into one refinanced loan.

It’s understandable why people may think that, since this wasn’t always an option. And consolidation through the Department of Education is only available for federal student loans.

But now you can choose to combine federal and private loans. So it’s important to understand whether combining federal student loans and private student loans is right for you.

Can I Consolidate Federal and Private Student Loans?

Yes, you can combine private and federal student loans by refinancing them with a private lender.

Through this process, you actually apply for a new loan (which is used to pay off your original loans) and obtain one with a new — ideally lower — interest rate.

Why would you want to do this? In addition to the advantages of loan consolidation (like having one, simplified monthly payment), refinancing student loans at a lower interest rate may lead to lower monthly payments. Note: You may pay more interest over the life of the loan if you refinance with an extended term.

Before you refinance federal student loans, there are a couple of things to think about. Here’s an easy decision tree to help you understand whether private student loan consolidation and refinancing federal loans is right for you:

Federal Student Loan Interest Rates

Some people assume that federal loans always offer the best rates, but this isn’t necessarily true.

Depending on loan type and disbursement date, new federal student loan interest rates are reassessed annually, every July. For the 2023-2024 school year, interest rates on new federal student loans range from 5.50% to 8.05% . Interest rates on federal student loans are determined by Congress and are fixed for the life of the loan.

Some borrowers — particularly those with established credit and a strong, stable income or who can find a cosigner with similar qualities — may be able to qualify for a private student loan with a rate lower than a federal loan. For example, grad school borrowers who have higher-interest-rate unsubsidized federal Direct Loans and borrowers with federal Direct PLUS loans may also be able to qualify for a private loan with a lower interest rate than those federal loans. Undergraduates are likely to find lower rates with federal student loans — without a cosigner or credit check.

When you apply to refinance, private lenders evaluate things like your credit history and credit score, in addition to other personal financial factors, in order to determine the interest rate and terms you may qualify for. This applies when you consolidate private student loans as well.

This means if you’ve been able to build credit during your time as a student, or your income has significantly improved, you may be able to qualify for a more competitive interest rate with a private lender when you refinance. (If you aren’t interested in or don’t qualify for student loan refinancing, a Direct Consolidation
Loan from the Department of Education might be worth a look — but you can’t combine federal and private loans into a Direct Consolidation Loan.) Private student loan consolidation is a different matter.

To get an idea of how much refinancing could potentially reduce the cost of interest on your loans, take a look at SoFi’s student loan refinancing calculator.

Federal Student Loan Benefits

When you refinance a federal student loan with a private lender, it becomes a private student loan. This means that the loan will no longer be eligible for federal benefits and protections.

Before you contemplate the idea of refinancing, consider taking a look at your loans to see if any of these federal loan benefits and programs apply to you — or whether you might want to take advantage of them in the future. Here are some to consider:

Student Loan Forgiveness

There are a few forgiveness programs available for borrowers with federal student loans. For example, under the Public Service Loan Forgiveness Program (PSLF), your Direct Loan balance may be eligible for forgiveness after 120 qualifying, on-time payments if you’ve worked for an eligible public sector entity that entire time.

Pursuing PSLF can require close attention to detail to ensure your loan payments and employer qualify for the program. The qualification requirements are clearly stated on the PSLF section of the Federal Student Aid website .

Similarly, the Teacher Loan Forgiveness Program is available for teachers who work in eligible schools that serve low-income families full time for five consecutive years. The total amount forgiven will depend on factors like the eligible borrower’s role and the subject they teach. The Federal Student Aid website has all the details of this program.

These forgiveness programs can be beneficial for people who choose careers in public service or education.

Income-Driven Repayment Plans

There are also a number of federal loan repayment plans that can ease the burden for eligible borrowers who feel their loan payments are higher than they can afford.

Under the student loan repayment plans and the other income-driven repayment options, monthly payments are calculated based on a certain percentage of the borrower’s discretionary income.

President Joe Biden’s Save on a Valuable Education (SAVE) Plan provides the lowest monthly payments of any IDR plan available to nearly all student borrowers.

But if your income is over a certain threshold, you likely won’t benefit from these programs.

And if you do qualify but you’re at the high end of the spectrum, your slightly lowered payments may come at a disproportionate price in the form of accumulating interest. Although the Department of Education says that if you make your monthly payment under the SAVE plan, your loan balance won’t grow due to unpaid interest.

Deferment or Forbearance

Life can be unpredictable — sometimes that means borrowers might have difficulty making payments on their student loans. When this happens, borrowers with federal student loans may qualify for deferment or forbearance.

President Biden proposed a federal student loan debt canceling of up to $20,000 for qualified loan holders but it was struck down by the Supreme Court in a ruling released in late June 2023.

The three-year-long pause on federal student loan payments due to Covid-19 lockdowns ends in the Fall of 2023. Student loan interest will resume starting on Sept. 1, 2023, and payments will be due starting in October.

For borrowers who can’t make payments, the DOE created a temporary on-ramp period through Sept. 30, 2024. This on-ramp period protects borrowers from having a delinquency reported to credit reporting agencies. And it prevents the worst consequences of missed, late, or partial payments.However, payments are still due, and interest will continue to accrue.

Also, there are ongoing deferment and forbearance options that allow borrowers to temporarily pause payments on their federal student loans in the event of economic hardship.

The biggest difference between the two is that with forbearance, the borrower is responsible for paying the interest that accrues on the loan during this time. Forbearance can have a major financial impact on a borrower, as any unpaid interest will be added to the original loan balance. With deferment, the borrower may or may not be responsible for paying the interest that accrues.

The type of loan you hold will determine whether or not you qualify for deferment or forbearance. Both options can be potentially helpful tools to borrowers going through a short period of financial difficulty, but both have important considerations .

Refinancing Your Student Loans

Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.

SoFi Student Loan Refinance
SoFi Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891. (www.nmlsconsumeraccess.org). SoFi Student Loan Refinance Loans are private loans and do not have the same repayment options that the federal loan program offers, or may become available, such as Public Service Loan Forgiveness, Income-Based Repayment, Income-Contingent Repayment, PAYE or SAVE. Additional terms and conditions apply. Lowest rates reserved for the most creditworthy borrowers. For additional product-specific legal and licensing information, see SoFi.com/legal.

Asset turnover ratio is a calculation used to measure the value of a company’s assets relative to its sales or revenue. It’s used to evaluate how well a company is doing at using its assets to generate revenue.

Similar to cash flow, the asset turnover ratio compares the company’s total assets over the course of a year to its sales. In simpler terms, it shows the dollar amount the company is earning in sales compared to the dollar amount of its assets. It can be calculated annually or over a shorter or longer period of time.

Why Is Asset Turnover Ratio Important?

Although having cash on hand is important for growing and maintaining a business, other types of business assets are also important, as is how a company chooses to use them. Liquid assets can include cash, stock, and anything else the company owns that could be easily liquidated into cash. Fixed assets are things the company owns that are not as easily turned into cash. This could include real estate, copyrights, equipment, etc.

For business owners, asset turnover ratio can be important when applying for loans and learning about their company’s cash flow. A higher asset turnover ratio indicates that a company is efficiently generating sales from its assets, while a low ratio indicates that it isn’t. A higher asset turnover ratio also shows that a company’s assets don’t need to be replaced or discarded, that they are still in good condition.

A higher ratio is preferable for investors, as well. Investors can look at the asset turnover ratio when evaluating the risk of investing in a company, or when comparing similar companies to one another. Each industry has different norms for asset turnover ratios, so it’s best to only compare companies within the same sector. For instance, a utility company or construction company is more likely to have a higher number of assets than a retail company.

Know, too, that asset turnover ratio is only one of many calculations that comprise the list of financial ratios that investors can employ.


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Formula for Calculating Asset Turnover Ratio

It’s fairly simple to calculate asset turnover ratio, which is one reason it’s such a useful tool for investors. Asset turnover ratio can be calculated using the following formula, which divides total (net) sales or revenue by average total assets:

Asset turnover = Net Sales / Average Total Assets

Which can also be shown as:

Asset turnover = Net Sales / ((Beginning Assets + Ending Assets) / 2 )

Where:

Net Sales = Gross annual sales minus returns, allowances, and discounts. Total sales can be found on a company’s income statement (typically part of an earnings report).

Beginning Assets = Assets at the beginning of the year

Ending Assets = Assets at the end of the year

Total Assets = Generally a company will include calculated average total assets on their balance sheet. However, sometimes additional calculations will need to be made.

Calculating Total Assets

The value of a company’s total assets includes the value of its fixed assets, current assets, accounts receivable, and liquid assets (cash).

•   Accounts receivable are accounts that hold expected revenues that come from when customers use credit to buy goods and services.

•   Fixed assets are generally physical items such as equipment or real estate.

•   Current assets are things that the company predicts will be converted into cash within the next year, such as inventory or accounts receivable that will be liquidated.

The formula for calculating total assets is:

Total Assets = Cash + Accounts Receivable + Fixed Assets + Current Assets

Example of Calculating Asset Turnover Ratio

To give an example of the ratio calculation, if a company has $2,000,000 in average assets and $500,000 in sales over the course of a year, the calculation of its asset turnover would be:

500,000 / 2,000,000 = 0.25 = 25% asset turnover ratio

Interpreting Asset Turnover

Sticking with the example above, we’ve calculated a 25% asset turnover ratio. What that means, exactly, is that the company’s assets generated 25% of net sales over the course of the year. In other words, every $1 in assets that the company owns generated $0.25 in net sales revenue. Again, this can be helpful when using various business valuation methods and trying to determine whether an investment fits your overall strategy.

Factors that can Cause Low Asset Turnover

There are several reasons why a company might have a low asset turnover. These include:

•   More production capacity than is needed

•   Inadequate inventory management

•   Poor methods of customer money transaction

•   Poor use of fixed assets

The ratio can also change significantly from year to year, so just because it’s low one year doesn’t mean it will remain low over time.

What Is a Good Asset Turnover Ratio?

Investors can use the asset turnover ratio as part of comparing and evaluating stocks. But what is considered a good number for asset turnover?

In general, the higher the number the better — and a number higher than 1 is ideal. This is because a value greater than 1 means the dollar value generated by assets is greater than the dollar amount that the assets cost. A higher number means a company is generating sales efficiently and not wasting assets.

Conversely, a number less than 1 means that assets are generating less than the amount of their dollar value. If a company isn’t effective at generating sales with its assets, it most likely wouldn’t be a great investment — which, again, is important to know if you’re building an investment portfolio.

Since each industry has its own standards for a “good” asset turnover ratio, there isn’t one specific number to look for. For companies in the utilities industry, ratios are generally lower than companies in retail.

Companies can work on improving their asset turnover ratio by increasing sales, decreasing manufacturing costs, and improving their inventory management. Other ways they can improve include adding new products and services that don’t require the use of assets, and selling any unsold inventory still on hand.

What Does a High Ratio Imply About a Company?

If you’re using technical analysis techniques to get some clarity around a company as a possible investment target, you’ll want to get down to brass tacks: What, exactly, is a high ratio telling you?

The answer is that a high ratio implies that a company is in good standing. It’s generating value with its assets, which can signal that it may be a solid investment. But, again, there are no guarantees.

Limitations of Using Asset Turnover Ratio

While asset turnover ratio is a useful tool for evaluating companies, like any calculation, it has its limitations. It is useful for comparing similar companies, but isn’t a sufficient tool for doing a complete stock analysis of any particular company.

Also, a company’s asset turnover ratio could vary widely from year to year, making it an unreliable measure for potential long-term investments. Even if the ratio has been similar in years past, this doesn’t mean it will continue to remain consistent. However, investors can look at the long term trendline of the ratio to get a general indication of whether it’s improving or not.

Since asset turnover is typically calculated once a year, if a company made even a few large purchases this could skew their ratio. This is fairly common, as companies might have certain monthly expenses but occasionally need to invest large sums of money into equipment, office renovations, or other common business needs.


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Drawbacks of Asset Turnover Ratio in Stock Analysis

The limitations outlined above play into some of the potential drawbacks of the asset turnover ratio when analyzing stocks, too. Mostly, it comes down to the fact that as a single ratio, which doesn’t reveal the total health or financial picture for a single company. For that reason, it’s probably a good idea to use the ratio in tandem with other analysis tools and methods.

For instance, other ratios that can be used to gain an understanding of a company’s financials are the debt-to-equity ratio, its P/E ratio, and even looking at its net asset value.

The Difference Between Asset Turnover and Fixed Asset Turnover

Fixed asset turnover and asset turnover are two different ratios that can tell you about a company, and for investors, it’s important to understand the difference between the two.

In short, and to recap, asset turnover ratio looks at average total assets of a company — “total,” in this case, being the important qualifier. On the other hand, fixed asset turnover ratio looks at a company’s fixed assets to measure performance.

Investing With SoFi

Knowing how to calculate asset turnover ratio can be useful for investors who are evaluating companies as they start building an investment portfolio. While the formula is simple — Asset turnover = Net Sales / Average Total Assets — it’s important to remember that the calculations work best when comparing companies within one industry, rather than across various industries.

Additionally, there are other metrics by which to evaluate a company or value its stock. The asset turnover ratio can be helpful, but it has its limitations. As always, speak with a financial professional if you feel like you’d benefit from more guidance.

Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).

FAQ

How can you improve asset turnover ratio?

Some ways that a company can improve its asset turnover ratio include increasing its revenues, selling some of its assets, renting or leasing assets rather than purchasing them, and optimizing its inventory and ordering systems.

Is an asset turnover of 1.5 good?

Yes, an asset turnover ratio of 1.5 is a sign that a company is on solid financial footing. It indicates that a company’s total assets are generating enough revenue from its current assets.

Can asset turnover ratio be negative?

Yes, and a negative asset turnover ratio would be a signal that a company lost money during the year, rather than earned it. A negative number represents that its liabilities or expenditures exceeded its assets.

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