Gazza, some items have an expensive & finite, if somewhat elastic, lifetime. A reserve is a way to account for a future $$ hit when that expensive item falls due. If the engine has a 2000hr recommended overhaul interval and it costs $20,000 to overhaul, you need to put away $10/hr for each hour flown if you're starting from a 0hr engine. If you fly 100hrs/year then you need to reserve $1000/yr to cover the anticipated cost. This presumes the engine will make it to that overhaul period. It could last longer, but it could also have something happen before then. If you bought the plane with a half life engine, then you have to double your reserve in order to have the funds accounted for when the engine reaches it TBO. In private operations, TBO is usually recommended, however it at least gives you some idea to plan for the 'how long is a length of string' expected lifetime.
If a paint job costs $10,000, and is expected to last 10 years, then you have to set aside $1000/yr for that future cost.