A community may improve its free cash and financial reserves through prudent financial planning and development of sound financial policies. The community could also establish policies to build its free cash balance such as conservatively estimating local receipts and aggressively pursuing the collection of receivables. Since free cash is an available fund that might not be generated in the next fiscal year, it is usually not used to fund recurring operating expenses.
A formal reserve policy will allow the community to establish a practice of appropriating money to legal reserves for future needs. Appropriations to reserves should be considered annually as a part of the budget process and appropriations from reserves should be made for unanticipated or capital costs, not regular operating expenses.