Instruction to fill form:
http://www.ind.homeoffice.gov.uk/ind/en/home/applying/british_nationality/application_forms.Maincontent.0004.file.tmp/Form%20AN%20New.pdf
Requirements:
http://www.ind.homeoffice.gov.uk/ind/en/home/applying/british_nationality/general_requirements.html?
7. Have lived legally in the UK for a
minimum of five years before you apply (three years if you are applying on the
basis of marriage to a British citizen) and are free from immigration time
restrictions.
You do need to check the fee schedule. If
you wait 80 days and apply with your wife and children you may save some money.
Do some research on the Internet or wait till someone answers who has been in
that situation. I think home office will reject your application if you apply
before you complete 5 years or in your case your wife. Find Immigration advice
service in your area and see what they have to say.