Edit: Thanks to the newest RetroArch update, we don’t need this workaround anymore. More about here: RetroArch update 1.19 introduces “Add to Playlist” option
There are many ways to create a custom playlist. Here is one simple way basically everyone can understand and do. But it requires moving a file on the filesystem first. Just go to the retroarch main directory and move the file “content_favorites.lpl” to the “playlists” folder, rename it to something more useful. And that’s it. Now this will appear as a custom playlist and your original Favorites is empty now. It is easy to mix and add games with the favorites system of the RetroArch UI. However once you “exported” the favorites into a custom playlist, adding new games to it isn’t easy. In that case you can reverse the process to get a favorites file back for editing purposes.