Trish, if you look at your picture, you will see that there are 4 squares on the diagonal. You want a finished square with a diagonal of 3". I went to my favorite site and it shows the square will be 2 1/8" finished. You will need to cut the squares 2 3/8". Be sure to check for 1/4" accuracy. Hope this is helpful.
http://www.mathopenref.com/squarediagonals.html