Your water heater can account for 13% of home energy costs.  The good news is that there are small, easy tweaks you can make to lower those costs and conserve energy at the same time. 

Use less
Nora has a bunch of great suggestions to reducing water use, but when it comes to hot water specifically, it's the shower that keeps most people raising the dial on their water heaters. Use low-flow showerheads, take quicker showers, turn off the water when you are soaping up, and stick with mild, lukewarm water. It's really not so bad -- trying to change your shower habits.  Try going without a water heater at all, and you'll realize you need a lot less hot water than you think.

Also consider using cold water to wash your clothes. About 90% of the energy use in a clothes washer goes to water heating. Cold water washing also helps clothes last longer!

Turn it down
Your water heater maintains its temperature 24 hours a day, 7 days a week.  That takes a lot of energy.  The standard setting is 140ºF but most households should get by comfortably at 120ºF.  For every 10ºF you turn down on your water heater, you save 3%-5% in energy costs. Turning it down to 120ºF could cut your costs by 6%-10%.  As long as you are reducing your use with the tips above, you won't even notice.  Make sure to consult your manual for proper instructions on adjusting the thermostat. For example, the electricity should be turned off before adjusting electric water heaters.

Turn it off
If you're going off on vacation, turn the temperature way down, or completely off. When you get home, you'll just need to wait about an hour to reheat before the hot water gets back in service. If you have a gas heater, make sure you know how to relight the pilot light before turning it off (or just turn it down without completely turning it off).

Insulate
Adding insulation is inexpensive and can reduce standby heat losses by 25%-45%, saving you 4%-9% in water heating costs. Check to see if your heater has a R-value of at least 24 (if your water heater is less than ten years old, it’s likely it’s already optimally insulated). You can also do a touch test – if it’s warm to the touch, it needs additional insulation. Make sure to check your manual for insulation instructions.

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Set a timer
Again, a lot of energy is used to keep the water hot 24 hours a day. And really, you only need it a few times a day. If you have an electric water heater, a timer can be installed to turn it off during off peak hours (at night after you go to bed). This can save 5%-12% of energy. For gas heaters, you can keep it turned down most of the time, and then manually turn it up about a half hour before you need it. Timers cost about $60 and should pay for themselves in about a year.

Reuse
Hot water that goes down the drain carries away energy with it. That can be 80%–90% of the energy used to heat water in a home. Drain-water (or greywater) heat recovery systems capture this energy to preheat cold water entering the water heater or going to other water fixtures. Heat can be recovered from hot water used in showers, sinks, dishwashers, and clothes washers. Prices for drain-water heat recovery systems range from $300 to $500 (and you’ll need a qualified plumbing and heating contractor to install the system). It can take 2.5 to 7 years to recover that cost in savings, depending on how often the system is used.

Buy a more efficient one
If your water heater is old, it might be good to look into getting a new one. New water heaters today are considerably more energy efficient than those of 20 years ago. In addition, Energy Star models can be 15% more efficient than standard models. Look for one with heat traps, which prevents convective heat losses through the inlet and outlet pipes. Find the best type of water heater for your home and look for rebates and incentives for energy-efficient appliances and equipment.