I purchased a roll of fiberglass insulation (the pink stuff iirc for $8-10), wound it around, and held it on with duct tape as a cheap alternative. The water heater was a gas one, and the ONLY gas appliance in the house. The gas consumption dropped by about 30%. We didn't use much anyway, but it paid for itself within a few months.
While you're at it I suggest drop the heater temp to 105-110. That temp is perfect for running the hot tap 100% for showers etc, and the lower temp will reduce temperate delta between the water heater & it's environment