I use a combination of the ideas already mentioned.
First, I ensure I've got the basics (underwear/ socks/ PJs.) covered. I stock up on these once a year at sales. Ditto for gear (if needed).
Next, I know what my essentials are and ensure I've got items in those categories that still fit/ are in good shape. For me, essentials include jeans, tops for various weather conditions in my key neutrals (navy, grey, white), silver/ grey/ white footwear, etc. I keep a running visual list in Finds. Coats for various weather conditions are also essentials in my climate.
(Note -- as others have suggested, it helps to narrow down your colour palette. It also helps to identify your key activities, as Suntiger suggested).
Once I've dealt with basics and essentials, I try to figure out if I've been feeling any gaps. Are there laundry bottle necks? Am I not wearing something because I'm missing the supporting act? Do I want to purchase those items or simply get rid of the orphaned item instead? Am I bored with my silhouettes or happy with them?
Also, I ask myself if there are new trends or combinations I want to try. I don't follow a strict French wardrobe 5 item system but I do try to include a wildcard or a new-to-me style or type of item each season and I aim to refresh/ update at least one statement item a season.