Lesson 24 of 25 · 6 min

Buffer arithmetic, computed

A buffer falls when cash leaves, even though every posted rate on the file is unchanged.

The 4.52 months from lesson 23 moves when the numerator moves, without any rate on the file changing. Track 5 lesson 12 is that split: a rate is a cost in time, a capacity is a different machine. A buffer in months is a capacity figure. It can fall while every posted APR sits still.

Same $12,480 against the same $2,762.47. After a $1,140 repair: cash is $12,480 − $1,140 = $11,340, and the buffer is $11,340 ÷ $2,762.47 = 4.11 months. After three months of a $420 lost shift not replaced: cash is $12,480 − $1,260 = $11,220, and the buffer is $11,220 ÷ $2,762.47 = 4.06 months. Two different paths, two different numerators, one unchanged stack, unchanged rates.

The repair is a one-time subtraction. The lost shift is a repeated subtraction: $420 × 3 = $1,260. Headroom fell from 4.52 to 4.11 on the first path and from 4.52 to 4.06 on the second. No card APR moved. No car installment moved. No housing PI moved. Capacity moved because cash moved. That is Track 5 lesson 12's independence, pointed at a household buffer rather than at a securities line.

4.52 became 4.11 and 4.06 with the rates untouched. The buffer is a quotient of cash and claims. It is not a print-out of the APRs.

Key terms

Buffer decay: A fall in months of payments caused by cash leaving, not by a rate change.
One-time subtraction: A single claim on the buffer. The $1,140 repair, taking 4.52 months to 4.11.
Repeated subtraction: A claim that lands more than once. Three lost shifts of $420, taking 4.52 months to 4.06.

Worked example

Two paths, rates still

Start $12,480 against $2,762.47, buffer 4.52 months. Path A: a $1,140 repair. Path B: three months of a $420 lost shift not replaced.

Starting buffer: 4.52 months
Cash after the repair: $11,340
Buffer after the repair: 4.11 months
Cash after three lost shifts: $11,220
Buffer after three lost shifts: 4.06 months

4.11 and 4.06 are capacity moves. The car's 7.65 percent, the card's APR and the housing PI did not enter either division.

Check yourself

Cash $8,640 against monthly obligations of $2,140, a 4.04-month buffer. After a $960 repair, and separately after three months of a $280 lost shift, what are the two new buffers?

Buffer decay without a rate change is Track 5 lesson 12 again: capacity can move while the posted rate does not. Open A rate change is not a capacity change →

Saved in this browser only. No account, nothing sent anywhere.

Educational only. Nothing in this lesson is investment, legal or tax advice, or a recommendation to enter into any transaction. Figures are illustrative and computed from the inputs stated in the lesson.