Heating water or more accurately, keeping it heated, is an expensive process and especially unfriendly to the environment if you're not using solar energy.
I've always found it odd that we generally set our hot water services to a temperature that's too hot to immerse our hands in. Instead, we add a ton of cold water to achieve the desired temperature. Also, every time you turn off your hot water tap, there can be gallons of hot water still in the lines - the heat is wasted and your hot water service then needs to reheat the equivalent of the water lost.
In addition, the hotter the temperature of your service, the less working life it will have.
For each 10ºF reduction in water temperature, you can save between 3%–5% in energy costs! As we're currently on bottled gas, we've certainly noticed a substantial saving just by bumping down the thermostat a couple of notches.
Other strategies for saving on hot water are to use faucet aerators and low flow shower heads. Check the laggings on external pipes regularly and you may also want to consider purchasing special insulation blankets which can help reduce heat loss (more suited to electric hot water systems).
Wherever possible, use cold water in food prepation cooking. Heating water on your stovetop consumes less gas/electricity as your water heater is likely to go into a heating cycle whenever hot water is used.
Likewise, use cold water for washing your hands - there are really no health benefits in using hot water as the temperatures that kill bacteria are also too high for human skin.
These days, with the improvements in laundry products, there's little need to use hot water in washing cycles. We use cold water for wash and rinse cycles and haven't experienced any problems with getting our clothes clean - and we use earth friendly, blackwater recycling system compatible detergents as well.
If you are in the market for a new gas hot water service, consider a tankless system. Tankless systems operate on an "on demand" basis; heating water when it's required. Anywhere up to a third of the energy used by a standard water heater is consumed by maintaining water at temperature in between uses.
