Thanks to Anna for this Frugal Baby Tip!
I do a lot of sewing and have found the best way to save money is to get on the fabric stores mailing lists. They send you their sale flyer a week or so early. It's amazing some of the sales they have. The 10 dollar patterns often go on sale for 99 cents, $22/ yard velvet can be gotten for 10 bucks/yard, etc. I know that terry and flannel does go on sale in the fall oftentimes. Usually fabrics are marked down 25 -50 percent, sometimes more on the "special" day.
Flannel is also found on their bargain racks, although the colors are a little odd sometimes. And look through the remnants section. One store here in Chicago continually knocks down their price of a remnant based on how long it's been in the bin. I got a very nice chintz fabric, normally $20/yard for $1.75/yard. It was only 3 yards, but was the perfect color to make throw pillows.
If you are making diapers anyways, you don't need that much yardage per layer, right? So, why can't you go to a white sale and pick up some good quality terry towels? I just went to the Linens and Things annual clearance and picked up some towels for 2 bucks. These are the same towels which they normally sell for 15 bucks a piece. It was cheaper to cut them down into dish towels than it was to buy dish towels which were one-fifth the size.
My mother claims I am the cheapest person she knows. Maybe so, but I hate paying full price for something if I know how to get the same thing cheaper.