I've never made a chain guard from scratch, but fitted a bunch and removed almost as many in anger, so take my advice for whatever that's worth. I assume you're talking about a single rear cog, so there shouldn't be much lateral movement of the chain at all. Every bike is different, though, and a bike that's flexible will need more clearance. On a stiff bike, I'd probably go with 1/4", but down to 1/8" if it's a really solid frame. On a floppy bike (like the step-through Spaceliner Interrobang is based on), a 1/4" might not be enough. Also, I don't know how big you are, so YMMV as far as how much the floppy flops (I'm 5'11", ~175 with long legs requiring a tall seat post that can put a lot more torque on the frame than it was ever intended for). Of course, the other thing to consider is how much space you have between the chain line and the plane of the crank's rotation, so make sure there's enough clearance there, as well.