With a baby on the way, Audrey Short and Jason James of Richmond, Va., know that life will get more complicated, and more expensive. It's a good thing they're used to the ways of frugal living.

With a baby on the way, Audrey Short and Jason James of Richmond, Va., know that life will get more complicated, and more expensive. It's a good thing they're used to the ways of frugal living.

But it's a tough economy all around, and a growing family can be particularly daunting without a financial plan. The reality is that frugality may not be a complete solution. One lesson to be learned from the severity of the recession is that if you don't have a clear financial action plan, now is the time to get one.

Both educators — he an assistant professor of anthropology at University of Mary Washington, she an English as a second language instructor at Virginia Commonwealth University — the couple has an annual household income of $90,000.

Over the years, they've learned to concentrate on low-cost pursuits, like volunteer work, bartering time behind the snack counter in exchange for performances at a local theater, and playing tennis at public courts. With just one car, a bicycle was Short's main mode of transportation to and from work until her advancing pregnancy made balance a safety concern. Now she rides the bus.

Though they're used to pinching pennies, Short, 37, and James, 41, still have financial goals that will cost a bundle when their little bundle arrives in April. Like millions of other parents, they worry about how they will meet their dual objectives of saving for retirement while also socking away money for college.

"Given our education backgrounds, we value education so much," says Short. "We'd like to be able to help our child with college, even if we won't be able to pay 100 percent of it."

One thing going for them is good saving habits. When Short landed her first job as a teacher at age 22, her mother demanded that she write her a check for $2,000 to start an individual retirement account. Short has contributed almost every year since and now has $28,000 in the account — about 40 percent less than she had a year ago thanks to the market slide. Additional retirement accounts from previous jobs total $50,000 more.

For James, saving started later. Completing a Ph.D. absorbed most of his 20s and early 30s. He only began saving for retirement in 2003. But a generous contribution by his employer and his own savings total about 15 percent of his salary, and that has enabled him to squirrel away $35,000 to date.

In addition to retirement, Short, the saver, has amassed an $18,000 emergency stash. The couple dipped into it when they married in 2006 to pay off James's $8,000 credit-card debt. They've since managed to stay free of credit-card debt. At the moment, they are looking for ways to free up more dollars for child care, which they anticipate needing once a week.

Short and James are clear about what they want to accomplish: build a retirement nest egg, amass some college savings and live debt free. That's an excellent place to start, say financial experts. "A good financial plan is goal-driven," says Suzanna de Baca, a vice president with Ameriprise Financial in Minneapolis.

Just having a plan in place can make a big difference as to whether or not you'll meet your goals.

A recent study by the Financial Planning Association and Ameriprise found that people who have a formal plan have more confidence in their ability to reach their financial objectives even in times of uncertainty. In other words, they don't freak out when their portfolios take a hit and stash their money under the mattress.

That's what James and Short think too. "It's painful to lose so much on my retirement account," Short says. "But I know I don't need that money for a long, long time." Once your goals are articulated, you can then draw up a road map. For example, T. Rowe Price Associates of Baltimore advises annual savings of 15 percent of your pay if by age 40 you have saved 1.5 times your annual salary. You can save less if your nest egg is bigger and more if it's smaller. That gives you concrete guidelines of what to do.

To allocate money toward these purposes, you need to know what is coming in and what is going out. That's where the B-word comes in.

"A budget is simply goal-setting for your money," says Dave Ramsey, radio talk show host and financial educator. But budgets get a bad rap because they're often seen as austerity measures. The key, says Ramsey, is not to make them so restrictive that they leave you feeling deprived, kind of like dieting.

Ramsey advises making a list of everything that must be paid. Be realistic. People tend to underestimate how much they spend on food and eating out. Once it's all on paper, you can make adjustments. Don't forget to include discretionary spending like entertainment and charity.

"Every dollar of your income must have a name on paper before the month begins," he says.

Those who really hate budgeting but still want to make sure they're saving might prefer Jonathan D. Pond's method. Pond, a certified financial planner and author of "Grow Your Money," advises people to set savings on autopilot. "Having money moved automatically just removes it from temptation's reach," says Pond. "I like to see people saving without realizing they're saving."

To build their emergency stash and Short's IRA, they deposit her paychecks of about $2,000 a month into a separate account from which they pay the mortgage. The $300 or so that's left is savings. "Everything else we buy during the month comes out of the joint account where Jason's paycheck goes," Short explains.

While they're disciplined now, Short and James worry that they may not be able to save as much when the baby arrives.

Much like working toward an academic degree, reaching your financial goals requires a progress report along the way to make sure you're on track. Setbacks will surely come up.

"Just because you have a plan," says de Baca, "that doesn't mean it's going to be appropriate at all times."

For example, because Short works on a contract basis, she fears that her hours may be reduced soon due to state budget pressures. The couple would rather not go into their emergency reserves, so they've already started to plan for how to reduce expenses and increase income elsewhere.

At $1,700 a month, their 30-year fixed mortgage at 6.25 percent on their brick home could be trimmed by several hundred dollars a month by refinancing into a lower rate.

The $300 per month that goes to pay off James's student loans is $100 more than the amount required to service the loan, so they can cut back there. And they anticipate that they will stay close to home when the baby is born, and their entertainment budget will surely shrink.

On the income side, James will consider teaching a summer school class or even tutoring at a local private school. Short has written test questions for an academic publisher in the past and will try to get additional freelance work.

Though they have challenges, when they look at how far they've already come, Short and James say they're making tremendous progress together. "Based on how little money we make as teachers," Short says, "I feel pretty proud of what we've been able to save."