After space heating and cooling, water heating represents the second largest consumer of energy in your house - accounting, on average, for a whopping 13% of total household consumption. And during the cooling season the energy-casualties inflicted by your water heating system may be even higher, after we account for the heat being dumped by your water heater and hot water pipes into your living space, and the extra energy your A/C needs to use to cool that (heated) space.
So, in the words of the great (okay, the "so-so"... or maybe even the "bad") 19th-century revolutionary Russian novelist Nikolai Chernyshevsky, "What is to be done?" The answer, in this case, involves no Utopian social engineering, no beds of nails, no Revolution.
No: all you need to address the water heating question is a water heater blanket and some pipe insulation. First, to determine whether you need extra insulation on your water heater, give it a feel with your hand - if it's warm, chances are it could use a blanket (also known as a water heater jacket). If you have an electric water heater, installing the jacket is a simple DIY fix; for a gas or oil-fueled tank the process is a bit more complicated, because you need to be sure not to obstruct the drain, the flue, or the airflow to the burner.
A water heater blanket will add another R-5 to R-6.7 to your tank, which could reduce your water heating costs by around 10%. Add some pipe insulation to any exposed hot water pipes (the most important area is the first 3 feet or so around the water heater) - preferably with the correct size, installed with the seam facing down - and you're looking at some real savings.
As an added bonus: when you insulate your water heater and your pipes, the water that comes out of the faucet will be around 2-4 degrees hotter, because the water will lose less heat on the way to the tap. That means you can turn your water heater down 2-4 degrees and not feel any difference, which will save even more money.
Of course, you could also make like one of Chernyshevsky's ascetic revolutionary heroes and just take cold showers... but that would just be silly.
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