"It (sledging) has always been part of the game from the very beginning, Waugh told news.com.au.
"Every team does it. You have to play the Aussie way. We play aggressive. We play positive. We like a bit of chat and that's the way we're brought up and that's the way we play cricket.
"That's the Aussie way. As long as it's not personal and it's clever it's fine. In my experience 95 per cent of the talk is about encouraging your own teammates.
"We were too quiet in that series against Sri Lanka. We need more enthusiasm. More energy and more talk."
He said he hopes Australia continues to play the Australian way when the summer of cricket begins with the First Test against South Africa in Perth, beginning November 3, despite the accusations made against players during the Hughes inquest.
"The game's always been the same. There's always been talk," he said.
"I hope it's still played in the same spirit.
"It's the same with short pitch bowling. It plays a part in cricket, banter or sledging or whatever you want to call it.
"We need to switch on and play really hard Test match cricket. We've been a little bit soft on occasions."
Waugh said South Africa's 5-0 sweep in the recent ODI series overseas will give the tourists a mental edge during the upcoming three-Test series.
Proteas captain Faf Du Plessis this week declared Australia will carry mental scars into the series after being blown off the park in South Africa with the white ball, and Waugh said that barb is just one of the factors Smith's team has to be resilient enough to overcome.
"The reality is it did give them an advantage, but we're good enough to overcome that," Waugh said.
"There's difficult circumstances that pop up every day in every Test match. You have to find a way to get through that. You don't want to lose 6-7 wickets in a series or you don't want to have 150 runs scored against you. When things go against you, you have to realise that moment when things have turned against you and try to stop that momentum. That's what we haven't done. They need to harden up in those situations and recognise those moments that can tilt a Test match. That's what we need to do."
Waugh is leading a group of 70 cyclists, including Matthew Hayden, Adam Goodes and Anna Meares, on a six-day ride from Mittagong to Mt Kosciuszko to raise money and awareness for families that are impacted by rare diseases.
For the first time, Waugh's annual ride challenge will include a world-first self-propelled children's bicycle to live stream the entire ride as a symbol for the children that aren't physically able to participate in the event.