You can think of how much of a hit to your income you can weather as your resiliency. If a fender bender is enough to send you over the edge, you have very low resiliency. If you can lose your job and carry on your lifestyle for 6 months without any changes while you find a new opportunity, you have high resiliency. Our goal at Farther is to help make you highly resilient. Emergency funds that protect you from life's ups and downs are the first step.
So how much do you need to set aside? That’s mostly a function of your expenses. At a minimum, you want to build up a cushion of three months worth of expenses before beginning to save elsewhere. To find out what your expenses are, add up what you spend on rent or mortgage, food and utilities, and any loan or other debt you need to repay. You might have more control over other expenses like travel and entertainment, but if you want to maintain your lifestyle, you should include those as well.
While three months is the minimum target, six months is certainly safer and will provide much more comfort for you and your family in trying times. Once you hit your three month goal, you can (and should!) safely contribute to an IRA up to the limit, but after that account is topped off, continue to save until you reach your six month goal.
Even after hitting it, be sure to reevaluate every once in a while. Your expenses may increase as you grow older, expand your family, or buy a house. Or you might you might be glad it’s there should you need to draw down on your emergency fund. In either case, make sure to keep an eye on it to ensure that your fund is keeping up with your lifestyle or use a service like Farther to do that for you.