For every finitary monad T on sets and every endofunctor F on the category of T-algebras we introduce the concept of an ffg-Elgot algebra for F, that is, an algebra admitting coherent solutions for finite systems of recursive equations with effects represented by the monad T. The goal of this paper is to study the existence and construction of free ffg-Elgot algebras. To this end, we investigate the locally ffg fixed point