We are 2 adults and 3 kids in a 1250 Sq ft home built in 1952, with no basement, attic, or garage. We've been here for 10 years and don't plan to upgrade ever. There is plenty of space, even after adding the kids. We've been told we have a "big house" by people who have the same size house or larger.
Choose furniture that fits. Look for "apartment furniture " if buying new. It's smaller. Don't get too much. Don't get it all at once.
If you have a tv, flat screen all the way.
Use shelves.
Keep floors clear.
Bunk beds work.
Think double duty. My home office is my laptop on the dining table with a corner shelf unit housing the wireless printer. Our bedside tables are our chests of drawers. DH and I share the bedroom closet in our room. Our bedroom tv sits on another long chest of drawers that holds wrapping paper, gift bags, random gifts to give away when needed, my personal stationary, and other stuff. Our family room has no coffee table but has a sectional of sorts, a single smaller plush chair, and wall to wall shelves with books, games, toys, the tv and xbox, and a few random things. The center of the room is empty and is used to play toys. Our kitchen is a pass through, so our table has a bench on one side that can tuck under the table of the table is pushed against the wall, for parties.
We have white cabinets in the kitchen and Terra cotta colored walls in there. Bright yellow in the front/dining/office/sitting room. Cream in the family room. Choose what you love.
We do have two tool sheds, as DH likes to build things.
I would fix up that second bathroom first. That is more important than the master bedroom, imho, and like other parents have said, I prefer to be closer to my kids at night.
I browse apartment therapy and pinterest for ideas on making the space work. You've got the right attitude. You'll be fine.