I have found that it is best to keep only the current season's clothes present in my dresser and closet. It leaves more space for the objects you are using regularly; if you can see an item, it is less likely to "fall through the cracks," so to speak. Formal and semi-formal dresses are the one exception that I make to this rule. In my closet, I have a moderately narrow dresser on the left (actually in the closet because the bedroom isn't large). In the dresser I keep undergarments, jeans, t-shirts and un-hang-able tops, gym and sleeping clothes. On the right side of the closet [starting from the left] I hang jackets, then dresses, then blouses, then dress pants, all on wooden hangers (the hangers came with my husband when we married, but Ikea has wooden hangers 8/$3.99 here). Within each category of clothing, I arrange the items by type and then by color. To the far right I hang scarves and belts.
On top of the dresser, I have a three level shoe rack where I keep whatever shoes are in regular rotation and special occasion heels. I highly recommend a shoe rack. It's super easy to grab a couple pairs to try on when deciding what to wear, and just as easy to put them away. Shoes can also breathe when stored this way. Shoe racks are relatively inexpensive on Amazon or at the local hardware store, or you can use a small bookshelf. Other solutions include storing shoes in their box with a pic taped to the outside, or using clear plastic shoe boxes. The local dollar store carries clear plastic shoeboxes for $1 each, and they are actually very sturdy.
To diverge a moment... If you don't already own a full length mirror, get one! In order to look great, you need to be able to see yourself, all at once, in a mirror (there is no judgement here if you don't own one, I went almost a year without one after mine shattered, but get on it and get one). I have this one from Target. It is $5.99. Again, I say, get one!
Now that things are tidy and paired down, play dress up. Maybe you can find lots of outfits or maybe not so many; keep an open mind and play with what you have. Take pics and notes. Jot down ideas about what would make your wardrobe more functional. Also consider if there is a discernible color story present in the items that survived the culling. If so, is it one that you like, or does it need to be tweaked?
Now, pour yourself a cup of coffee (why don't you make it wine? You deserve a reward for making it this far!), and sit down and think about your needs. What does a week in your shoes look like? Do you have regular special events that require special outfits? Think about the season, and any special needs that it brings (e.g. swimsuit, heavy coat, etc.). It is very important to get all of these items and ideas down on paper. Once you have done so, you can begin to really create a list of needs and wants, and prioritize and reconcile them within your overall budget. Tune in next week to learn about creating a capsule wardrobe based on what you've discovered today, and how to do so on a budget.