Frank is exactly right. I usualy put
SetDirectory[NotebookDirectory[]]
in the first part of any notebook that will read or write data from the notebook directory. For a new notebook, before the notebook is saved for the first time it doesn't know its directory (you will get failed), but as soon as you've saved it, NotebookDirectory will return the notebook's directory. You can also use "Insert / File Path" from the top menu to select files with a dialog box.
