1. Open your Home tab
2. Swipe left or tap your profile picture in the top left corner > Settings and privacy
3. Tap Apps and devices and under "Other devices", toggle on Local audio files.
4. Now head back to Your Library
and you should see the Local files folder alongside your playlists.
5. Open the Local files folder and make sure to grant Spotify access to your photos and media. After that, you local files will appear here.
You can now continue to add them to playlists or just listen to them from your library.