In this step we look at the financial demands imposed by the your lifestyle. This serves two purposes:

1. To determine where your money is going
2. To determine how sustainable it is, i.e. is more being spent than earned.

This data is analysed and average values automatically plugged into the cashflow worksheet. There are four points to note:
First, the worksheet section marked `Loans` is the sum of everything you owe on credit cards, store cards, overdraft, etc.
Secondly, your income should be 1.5 times bigger than your outgoings. That is there should be a surplus of income over outgoings of a third of your income.
Thirdly, the amount and type of debt you have needs to be assessed. If the surplus is less than that, or you have revolving credit card debt, or if your non-mortgage debt payments exceed 15% of your salary; consult debt management.
With mortgage debt you can afford to be a little more generous, because your home can be considered a real investment in the long term. Credit card debt cannot! Just because the bank will lend you money, it doesn't mean that you'll realistically be in a position to pay it back. Ensuring that you're in control of your other expenditure is vitally important because, if you fail to make your mortgage repayments on time, you'll be in trouble. The lender can and will sell your home to get their money back. And they will do it when it suits them, not you. The housing market might even be depressed at the time, but they'll have no reason to delay selling - they just want their money.
It is, therefore, essential to ensure that the costs of buying your home are well within your means. You should be able to meet your general living expenses, make your monthly mortgage repayments, and still have some spare cash to add to your savings. Remember that your monthly outgoings are likely to change if you move to a new property. Your utility bills may be higher, as could your council tax and insurance. If you're moving into a flat there could be a service charge to pay for maintenance of the property as well. One rule of thumb is to aim for a monthly mortgage payment that takes up a maximum of one-third of your disposable income.

Finally, the spreadsheet will identify your twelve largest outgoings. This is displayed on the Cost Analysis worksheet.
Divide the twelve into four groups of three and target at least one outgoing from each group to be reduced.

Having completed an analysis of your current financial state, you are in a position to use the financial data accumulated so far in order to address future needs. This is done in Stage 3.