4. Insulate
Insulate your water heater and water pipes if they do not already come installed with good insulation.
If they are already insulated or you add insulation, then stick a leaf on the tree.
Insulating pipe wrap costs $6.99 for 25 ft. Take care when you install, wear a mask so the fibers from fiber glass are not inhaled - as they can cause dangerous lung problems. Insulating hot water pipes reduces heat loss and can result in water temperature that is 2ºF–4ºF hotter than that in uninsulated pipes. This means to get the same temperature after insulating as before, you can turn down your water heater’s thermostat and save energy.
Insulate all accessible hot water pipes, especially within 3 feet of the water heater. It’s also a good idea to insulate the cold water inlet pipes for the first 3 feet. If you insulate the pipes they will stay warm longer and you also won’t have to wait as long for hot water when you turn on a faucet or showerhead, which helps conserve water.
A water heater blanket costs from $25. Feel the outside of your water heater, if its warm then consider buying a blanket for it.Unless your water heater’s storage tank already has a high R-value of insulation (at least R-24), adding insulation to it can reduce standby heat losses by 25%–45% (check your manual). This will save you around 4%–9% in water heating costs.
WARNING: Don’t set the thermostat above 130ºF on an electric water heater with an insulating jacket or blanket—the wiring may overheat.
Source: http://www.eere.energy.gov/consumer/your_home/water_heating/index.cfm/mytopic=13070.