A mug is an easy mark, someone gullible who’ll believe any old chat and end up paying over the odds. Telling someone don’t be a mug is basically wise up and stop getting played. Different thing, getting mugged is being robbed in the street, not just looking daft. Nobody wants either, but the first one’s avoidable.
"He dropped 150 quid on a dodgy bag outside Stratford and acted gassed. Mandem told him straight, bruv, don’t be a mug."