How can I change my contacts to be saved to the phone so I can create groups?

I can help with that. Please go to your Settings, then tap Apps, find Contacts, and make sure that all your contacts are set to save to the device. This will allow you to create groups for your contacts.

I will have to see an example of what you need to do. I will try to find this for you. I can call you back tomorrow. My extension is 405 and my name is Juan.

Unfortunately, you won't be able to delete those contacts that are saved by smart list. It's a feature that everyone has, and it has been like that forever.