diff --git a/src/pilgrim/application.py b/src/pilgrim/application.py
index 674cc0c..81973f8 100644
--- a/src/pilgrim/application.py
+++ b/src/pilgrim/application.py
@@ -1,16 +1,47 @@
 from pilgrim.database import Database
 from pilgrim.service.servicemanager import ServiceManager
 from pilgrim.ui.ui import UIApp
+from pathlib import Path
+import os
+import sys
 
 
 class Application:
     def __init__(self):
+        self.config_dir = self._ensure_config_directory()
         self.database = Database()
         session = self.database.session()
         session_manager = ServiceManager()
         session_manager.set_session(session)
         self.ui = UIApp(session_manager)
 
+    def _ensure_config_directory(self) -> Path:
+        """
+        Ensures the ~/.pilgrim directory exists and has the correct permissions.
+        Creates it if it doesn't exist.
+        Returns the Path object for the config directory.
+        """
+        home = Path.home()
+        config_dir = home / ".pilgrim"
+        
+        try:
+            # Create directory if it doesn't exist
+            config_dir.mkdir(exist_ok=True)
+            
+            # Ensure correct permissions (rwx for user only)
+            os.chmod(config_dir, 0o700)
+            
+            # Create an empty .gitignore if it doesn't exist
+            gitignore = config_dir / ".gitignore"
+            if not gitignore.exists():
+                gitignore.write_text("*\n")
+            
+            return config_dir
+            
+        except Exception as e:
+            print(f"Error setting up Pilgrim configuration directory: {str(e)}", file=sys.stderr)
+            sys.exit(1)
+
     def run(self):
         self.database.create()
         self.ui.run()
diff --git a/src/pilgrim/database.py b/src/pilgrim/database.py
index b940c54..aba4219 100644
--- a/src/pilgrim/database.py
+++ b/src/pilgrim/database.py
@@ -1,14 +1,42 @@
 from sqlalchemy import create_engine
 from sqlalchemy.ext.declarative import declarative_base
 from sqlalchemy.orm import sessionmaker
+from pathlib import Path
+import os
+import shutil
 
 Base = declarative_base()
 
+def get_database_path() -> Path:
+    """
+    Get the database file path following XDG Base Directory specification.
+    Creates the directory if it doesn't exist.
+    """
+    # Get home directory
+    home = Path.home()
+    
+    # Create .pilgrim directory if it doesn't exist
+    pilgrim_dir = home / ".pilgrim"
+    pilgrim_dir.mkdir(exist_ok=True)
+    
+    # Database file path
+    db_path = pilgrim_dir / "database.db"
+    
+    # If database doesn't exist in new location but exists in current directory,
+    # migrate it
+    if not db_path.exists():
+        current_db = Path("database.db")
+        if current_db.exists():
+            shutil.copy2(current_db, db_path)
+            print(f"Database migrated from {current_db} to {db_path}")
+    
+    return db_path
 
 class Database:
     def __init__(self):
+        db_path = get_database_path()
         self.engine = create_engine(
-            "sqlite:///database.db",
+            f"sqlite:///{db_path}",
             echo=False,
             connect_args={"check_same_thread": False},
         )