One day a few years ago, I was looking at some random parts that were sitting around, trying to think of something that I could do with them. I had a plastic housing that formerly contained a PC speaker, a salvaged contactor switch, and a lamp timer. I had thought about buying a timed switch for the water heater before, and inspiration finally struck.

I had been switching the water heater off manually with the breaker for a while. Even though I never tracked the difference in energy use, there was a noticeable reduction in my electricity bill. The manufactured timed switches available locally were, and still are, selling for between $40 to $60. After a little pondering I came up with a circuit design utilizing the parts and materials that I had available. At this moment the estimated cost for the parts, from the sources I've referenced, is about $30. So even if you don't already have equivalent parts, you can still build one for a little less than the average retail cost for one.

Some things to consider before deciding to build one.

Design is for a 240VAC up to 40 Amps rated water heater in the US.
Working with utility (mains) power can be dangerous. I encourage those with no previous experience to do some research to first familiarize yourself with the fundamentals, as this isn't intended to be a tutorial for beginners.
Always switch off the circuit breaker before accessing the wiring. Do Not trust the labels in your breaker box! Carefully use a voltage tester at the heater to confirm that power has been disabled before touching wires.
Using a custom device like this may violate building codes.
The lamp timer that controls the contactor switch is programmed in 15 minute intervals. This is more versatile than the common manufactured timers with an interval resolution of 1 hour.
A solenoid contactor switch is more robust than the rotary cam actuated switch contacts used in the manufactured units.
The one I built has been performing reliably for more than 4 years.
Here's a tutorial for installing a manufactured timer.

Parts List

X1 - 1 Pole 40 Amp Contactor with 120VAC Coil
X1 - 120VAC Lamp Timer
X1 - 120VAC 15 Amp Duplex Outlet
X1 - 120VAC SPDT Toggle Switch
X1 - Housing
X2 - Cable Clamp
3 Feet Lamp Wire
X2 - 120VAC Plug
X2 - Large Wire Nuts
X4 - Crimp Female Spade Terminals

Optional

X1 - Neon Indicator Lamp

Tools

Voltage Tester
Screwdrivers
Pliers
Wire Cutters
Wire Strippers
Drill and Bits for modifying housing if necessary.

Step 1: Choose a Housing

As I said, I used a plastic housing that held a PC speaker. I made a custom face plate using a scrap piece of ABS plastic sheet stock that I had. There are many options for a housing available at home centers, if you don't already have something appropriate. When choosing consider the fitment of the parts, and placement.

Step 2: Wiring the Circuit

Because I built mine with what I had, the circuit that I used is a little more complicated. The contactor that I had is double pole but one pole was burnt up when in service in the air conditioner it was salvaged from. This is okay though because only one leg of the of the 240VAC line to the heater needs to be switched. I had to use a step down transformer to power the 24VAC coil of the contactor that I had. Also, I chose to include an indicator light. I had a panel mount LED so I made a bridge rectifier and used a 47K series resistor to power the LED. I've simplified the circuit in the schematic. If the wire carrying 240VAC to your water heater isn't long enough for you to cut in your timed switch, you'll need to buy a length of 10-2 building wire.

Contactor coil terminal 1, using a length of your lamp cord connect the center terminal of the override toggle switch here. Using a short length of lamp cord, connect the normally closed contact of the override switch to the hot (brass screw) terminal of the unbridged bottom outlet here. Crimp matching female spade connectors on the contactor terminal end of the lamp cord.
Contactor coil 2, connect the other wire of the first length of lamp cord between this terminal and the neutral (silver screw) terminal of the unbridged outlet here.
Where one hot leg from the 240VAC line connects to a contactor switch terminal.
Where one hot leg from the water heater connects to the corresponding contactor switch terminal.
Where the ground from the 240VAC line ties to the ground of the water heater, and the neutral terminal of the timer outlet. Twist the wires tightly together with pliers.Use a large wire nut to cap the tie point.
Where the other hot leg from the 240VAC line ties to the other hot leg from the water heater, the hot terminal of the timer outlet, and the normally opened contact of the override toggle switch. Twist the wires tightly together with pliers. Use a large wire nut to cap the tie point.
The 15 Amp duplex outlet. Be sure to break the bridge tabs isolating the two outlets.
Override toggle switch.
Optional neon indicator lamp. Connect across the contactor coil terminals.

Cut a piece of lamp cord long enough to reach between one of the switched outlets of the timer, and the unbridged bottom outlet. Connect a 120VAC plug to each end of this wire, making sure the polarity is the same on both ends. This will be the jumper between the timer, and the unbridged bottom outlet that is connected to the coil of the contactor.

Double check all connections referring to the schematic. Plug in the lamp timer and jumper cable. Switch on the breaker and set the timer for a test cycle.