We have always lived small and yes...layout and storage for what your really need are the most important factors. Right now, we have 2 tiny closets and we don't even own much BUT the things we do have need a space. I agree with getting rid of what you don't use at all...trade it for maybe something you do need or donate, yard sale, etc....Layout is critical. We have L-shaped bunk beds, which actually work quite well in a small bedroom. Again, we only own what we need and you will be suprised what you can live without. Another thing is living room furniture. We had a HUGE bulky couch that took up all the space and only had 3 spots. We swapped that out for 2 twin beds that only require the top mattress and the bottom has drawers for storage- GREAT for toys and misc. items. With huge throw pillows on the back and a tightly fitted durable heavy cotton "sheet" on it, they are quite comfortable, I have WAY more seating and more room around them. It's great. We now have a huge coffee table for games and coloring or just a good old fashion pizza and movie on the couch night. We offloaded our humugous tv stand and now just have a decent size flat screen. The movies/cd's are stored under our couch. Makes the kiddos clean up faster and organization easier. Think outside the box in small spaces.
I hated the cupboard we have in the kitchen for storage- think narrow and too high for me to reach the top. I bought some industrial shelves and made my own little pantry in a nook. It's just what I need and no one sees the mess. I use the cupboard for dishes, cups, extra serving pieces and storage of our cleaning items, cloth items and I barely use the lower cabinets...which means little hands cannot access things they should not.
All I keep down there are the cleaning brushes, bucket, dog food in a tight container, and the grilling tools. No more bending over or misplaced items in the back of the cupboards on the bottom that I can't see.
Clothing- we REALLY have to work at this one. I work in a professional environment, so I need to wear suits, no casual attire for me. I use the front hall closet for that stuff- all work related. Otherwise, most of my around the house stuff fits in my 6 drawer dresser- even skirts and dresses can fold up if you try. I purged, purged, purged, and purged some more and still can't wear all that I have. My DS has a 3 deep drawer dresser for 90% of the his clothes, with a low hanging rod for his coats and items that don't fold up. I use the top of his closet for out of season items like coats and I keep a 6 shelf sweater holder thingy in there with our boots, mitten, hats and his undies, socks and extras on the bottom 3 shelves. Easy access and he can help put away the laundry.
I like that I always know where my family, furry or otherwise, are and to clean up and organize is literally a snap. My clotheslines is right outside my back door in my enclosed raised garden beds. It is simple and sweet. It does take some time to figure out your own house and how it works best. After years of moving 9 times in 3 years to many different types of housing, I am learning to work with what I have and yes, you can live small with a family.