Last year Barca went from a DISTANT 3rd in La Liga to dominating the league and playing for the Champions League title.  They didn't spend ridiculously over the summer, they found the right fit to run the team and spent wisely in key positions.  Madrid doesn't need to spend hundreds of millions of Euro to contend next year.  They have options to bring back quality players like Negredo for as little as 3m Euro, and have assets that can generate options in the transfer market if they're smart.  So you'll notice that not one of my steps has anything to do with buying big name players.  To get the proper results, it likely won't happen in a year, but by the 2010-2011 season, Real should be competing on the biggest stages.

1. When you've got rats in the kitchen you call the exterminator.  Getting rid of Calderon, Balouda and Mijatovic was absolutely critical.  As the saying goes: "You lie down with dogs, you wake up with fleas".  
2. Pick a coach and stick with him.  No need to rush in to a decision.  Take your time, choose carefully and commit.  It's been 7 years since Madrid last lifted the only trophy that matters, and since than there have been 5 men who have tried to lead Los Blancos, not one has made it past the first knock out round. 
3. Commit to a style.  Capello got canned after winning La Liga because his brand of football wasn't "attractive enough".  I'd rather win ugly than lose pretty.  Ramos was criticized for Madrid's style of play in the midst of an incredible streak of 52 out of 54 possible points.  As soon as he tried to play attacking soccer against a far superior Barca squad, they got annihilated.  Chelsea's gameplan in the first leg of the semis against Barca set soccer back half a century, but many felt it demonstrated Hiddink's brilliance for not trying to go head to head against Barca's firepower.  This isn't to say that Madrid can't or shouldn't strive to play beautiful football, but there are plenty of ways to skin a cat.
4. Enough already of the Cristiano Ronaldo obsession--He's not coming, and even if he was, we'd pay too much.  He's like the hot chick in high school.  She looks great when she's with someone else, her skills are world reknowned, but she's more trouble than she's worth once she's yours.    
5. Pass the Dutchie to the left hand side--Is there a bigger underachiever in the global game than the Oranje?  All the talent in the world, they typically play an attractive brand of football, but what do they have to show for it?  Via con dios Ruud, Robben, Van der Vaart, Drenthe and Sneijder.  Huntelaar is a keeper.