FATAL: password authentication failed for user postgres

If you face this error on trying to use psql, the following steps should fix it:

By default, postgres creates a user named 'postgres'. We log in as postgres, and give a password.

$ sudo -u postgres psql
\password
Enter password: ...
...

Now try again. The above steps work for a fresh install of postgres 9.1 and 8.4 on Ubuntu 12.04.