Budgeting goes hand-in-hand with planning to buy a home, but many consumers don't make the connection.

A survey by the National Foundation for Credit Counseling (NFCC) revealed 57 percent of those who responded believe incorrectly that a budget is a restriction on how they choose to spend money.

Fewer, 43 percent, understand that budgeting allows them to direct money spending to chosen goals.

"A budget actually provides the structure through which a person can be in charge of his or her spending, directing the dollars to their best use," said Gail Cunningham, spokesperson for the NFCC.

"Spending should be a reflection of a person's priorities, but without a plan, the priorities often get pushed aside in favor of the tyranny of the urgent," Cunningham added.

A budget, often part of homeownership counseling curriculum, is designed to change spending habits from wants to needs. It does so by allowing you to see where your money is being spent.

Once you know where your money goes, you can make changes to unnecessary spending and direct spending and savings toward practical financial goals, say, buying a home.

NFCC's June Financial Literacy Opinion Index was conducted via the homepage of the NFCC Web site (www.DebtAdvice.org) from June 1 to June 30, 2013 and was answered by 793 individuals.

Benefits of budgeting

NFCC says the reluctance to construct a budget suggests that people may be afraid to face the financial facts, choosing instead to allow the most pressing need or want of the moment to make the decision for them.

Instead of being restrictive, a budget often creates more money due to smart spending choices.  If financial freedom is the goal, a spending plan is the tool that starts the process.

NFCC reminds consumers that a budget's spending plan includes the following benefits:

  • Creates a thoughtful awareness of spending
  • Relieves financial stress
  • Increases financial security
  • Helps structure a plan for the future
  • Allows planning for large purchases
  • Assists in meeting financial goals
  • Frees up money to designate for savings
  • Uncovers money available to invest
  • Allows preparation for emergencies
  • Avoids late payments through scheduling timely payments
  • Finds hidden money for debt repayment
  • Potentially raises the credit score

"It's a shame that budgeting has a negative connotation. Everyone needs a spending plan, but when times are tough, a budget is even more critical," Cunningham said.

"When every penny counts, it's important to count every penny," she added.