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What we have done, is make stuff by hand, and lots of it. The handmade blankets, and baby beds, are often loved more and become heirlooms where the store bought items get sent to the garagesale, or donated.

I made a nice baby bed for my first grand son, and now my daughters are jealous because I didn't make one for their kids. Truth is, I never knew I could make one, and impressed myself by making it. My wife has many blankets she either sewed, or crocheted. Also gloves, hats, sweaters,boots, and more than I can remember.
 

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Freecycle has probably already been mentioned. I give quite a few things locally and baby things go fast. I went yard saling last weekend and if I had a baby or a grandchild, I would have come home with a car load of stuff for little money. I go late, so prices, even at yard sales, are lower. Can you sew? Babies love stuffed anything. And the biggest thing you have to give is your time and your love, both of which are the most frugal of all - free.
 

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Congrats to you!!! We were fortunate to have our son and dil close when our grand-daughter was born. Today is her third birthday and in two weeks they will be moving back to Ontario as our son is in the military and is posted back there. They are really excited about it and it will be her other set of grandparents who will be closer this time. We all have to take turns. We will do skyping on computer on a weekly or biweekly basis. We haven't spoiled her with stuff just lots of hugs, kisses and love which is really all that matters.
I think (like others have suggested) that you should set up a trip/fun with grand-daughter fund so that when you get together you won't have to go overboard. All the best to you--and enjoy the new change in your life!!!
 
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