Welcome Sunshine!
First your contacts must be Google contacts. You can't store personalized ringtones for phone or sim contacts. Then, on your SD card, if you haven't doen it already, create a folder called ringtones (the standard convention puts them in media/audio/ringtones, but as long as the folder that contains the files is called ringtones, it will work) and place your audio files for your custom ringtones there.
Then open contacts and tap on the contact you wish to modify. From that screen, press menu>options and you can assign a custom ringtone there.