This is so easy and my kids LOVE it!!!
Go buy a lift the flap book.
(As a side note - lift the flap books can be hard to find. There's no 'lift the flap' book section at the book store. )
I prefer one with lots of flaps (see below) so you have space to add more pictures as your family grows.
Miss M. loves, loves, LOVES this book. She looks at it several times a day. This is saying a LOT because this little girl never sits still.
Anyway, all you do is cut random family pictures to fit under the flaps. Then just adhere them under the various flaps. I like to do all our extended family as opposed to just the immediate family. Though it might be fun to do one of just the immediate family and have them making different faces (happy, sad, etc.)