Common Area

The common area is the center of activity, and the family will generally spend most of their day, so make it central and design the rest of the house around it.  Typically it will also face south so that it has good daylight, and in colder climates can get passive solar heat. In hot climates you might want to put a small portion of the common area facing north, but consider also that few other rooms want to face south, so the common area is still the best choice.  In general, the best arrangement for the common area is a long thin room, occupying the majority of the south face (see more under building shape). Often the building lot does not allow this and you will end up with more of a box, or "L" forcing some of the common area to the north,  so you will have to decide which rooms can tolerate the darker north face (or in hot climates, which you'd prefer there).

A kitchen that faces east catches the morning light and avoids the afternoon heat, and likewise one that faces south will be light-filled much of the day. In constrained situations the kitchen usually ends up facing north, but consider putting the dining or living room in that direction instead as the activity in the kitchen always demands a lot of light.

The kitchen should generally be close to the common area, since you will be bringing groceries in and garbage/recycle/compost out on a regular basis.  For more on entry location see "Intimacy gradient".

The common area should have reasonable access to a bathroom, see "bathrooms".

While the traditional common area consisted of a separate kitchen, living room, and sometimes a dining room and sometimes a fourth room (either a family room or study), the reason for the separation was a much more formal lifestyle compared to what is now common.  There was also a long period of transition where houses contained a formal living room that was rarely actually lived in, and another room, such as a family room (or "den") where the TV was and most of the time was spent.  More common now is to skip the formal living and dining rooms, and have one "great room" (often referred to as the open floor plan), although there are still reasons why some separation is desirable.

The advantages of the great room concept is that the cook is no longer isolated, that activities in each space can spill over into the other one, and that conversation can span the spaces, although the room is often too large for it to span from the kitchen beyond the dining area.  The one large room also helps a smaller house look bigger.  The disadvantage is that the noise isn't contained, and that whatever mess is in the kitchen is also not contained, particularly when there are guests.

open floor plans
These are typical open floor plan layouts. Each can be flipped and reorganized in various ways, and the kitchen plans could also be swapped: in particular the work space could be south facing. In the far left plan, the common area is one half of the house, and the bedrooms the other, but the bedroom could equally well be east or west, creating a very long thin house.  In the rightmost two plans the common area is more square, which makes for two different locations for the dining room, allowing the other to be the family room, a bedroom, or possibly a mud room/bathroom.  In the far right plan, the bedrooms are on the second floor. While the other two plans don't show stairs, they could equally well have a stairs and bedrooms on the second floor.
The plans are drawn as simple boxes, but they don't have to be so.  These plans aren't very specific because there are many good variations and each situation (where the entrance is, slope, tress, other buildings etc) requires a different variation.

Open Floor Plan Issues

Assuming you've opted for the open floor plan, there are two remaining questions to answer: how much do you want to isolate the kitchen, and if you've included both a noisy and quiet living spaces, where to put them.

Kitchen: The kitchen will always be at least partially connected with a dining area, so the question here is: how connected?  In the simplest case, the kitchen has a different floor covering and maybe a table sits near the edge somewhere.  Somewhat more isolated would be that there is an island attached to the floor in place of the table, or possibly there is a short wall, in the case where there is both breakfast nook and a dining area.  Progressing to further separation, the short wall could be thickened and hold cabinets topped with a counter (typically at 36" off the floor).  Separating a little bit more, we can thicken that counter a bit more and raise a small portion to bar height (around 42" off the floor),  which in most cases is high enough to hide most of the kitchen mess.  If you'd like further psychological separation, you can install upper cabinets starting at just above eye height (say 72" off the floor), which now leaves  only a 30" opening. You can still see and hear between the two rooms, but the kitchen now feels completely separate.  If your goal is to keep guests out of the kitchen, make sure to put food elsewhere, provide plenty of space for them to talk to you, or make the kitchen almost completely a separate room by providing only a doorway passing into it.

dining/kitchen separation
Varying degrees of separation between kitchen and dining areas: simple island (left); counter with bar (middle); counter, bar and upper cabinets (right).  Far right is a cross section showing the relationship of the various elements.

Living/Family:  If this space is intended to be mostly quiet, it's typically somewhat distant from the kitchen, while if it contains the TV it is often closely connected with the kitchen.  If two separate spaces are needed, then the noisier one might be located near the kitchen and the quieter one separated a bit.  However, if the walled off room is the quieter one, it likely will be best further from the TV.  In either case, the separated room should still be closely connected to the common area, but slightly isolated. Space that is used primarily for the TV can easily be north or east facing, since daylight is not generally needed, while any space for reading is best on the south.  If this all sounds a bit vague, its because it is: there are so many variations in the arrangement of the common area that almost anything is possible.

While it is common to have some kind of physical separation between the kitchen and dining areas, there if often none between the dining and "living" area.  Sometimes the living area is around in the corner a bit, as in the "L" configuration, but in others there is really no separation at all, so separation is created by furniture, or sometimes a partial wall.  Any furniture whose back faces the rest of the room will be less used than others because people generally prefer to be able to see everyone else.

Other considerations: When arranging the common area, think also how it relates to the other important building blocks: the main entrance and the bedrooms (see Intimacy gradient/main entrance), while also trying to keep the common area south facing.

People tend to gravitate toward the edges of a space rather than in the middle (see places on the edge), so make at least one place along the edge in the common area.  A specifically made alcove such as a window seat works best,  but the traditional solution of a couch up against a wall works as well.   When these places are done right, they are generally the most well loved places in the house.

Considering that the common space is often the most used space, it often makes sense to spend the majority of your budget on space here.