Click “more info” on any Living Expense. (Client Info > Income & Expenses > Living Expenses.)
You will see the section to specify that part or all of the expense is discretionary, as shown below.
The effect of marking an expense as discretionary is that it will show up as such on the Budget Report (Forms & Reports > Budget Report).
You also have to specify, on the Budget Report options page, that you want to display discretionary expenses.
To do that, click the link for options at the top of the Budget Report.
Then select the option to display discretionary expenses.
Then discretionary expenses will be listed separately on the Budget Report, at the bottom.