April 21 (Bloomberg) -- With the price of oil and gasoline hitting record highs, it's time to wake up and face the crude truth on how you can save money on energy costs.

As commodity traders push oil prices ever higher as the dollar recedes, there's little, if any, relief in sight at the fuel pump or from soaring utility bills.

Yet the deer-in-the-headlights attitude that most investors, vehicle owners and homeowners adopt is misguided. There are quite a few actions you can take to beat the escalating cost of energy.

The most-common response to high gasoline prices is to go out and purchase a high-mileage vehicle. This reaction certainly hasn't hurt the sales of companies such as Toyota Motor Corp. and Honda Motor Co., which offer several fuel-stingy cars, trucks and vans.

If you have a long commute or simply drive a lot, you'll immediately see the savings. There will be longer times between fill-ups. It may not make sense to pay a premium for these cars, though. The top two highest-mileage cars -- the Toyota Prius and the Honda Civic Hybrid -- carry retail prices of more than $20,000.

Let's say you bought a stripped-down Toyota Prius for $22,000, received a $4,000 trade-in allowance and put $2,000 down. You also paid about $1,300 in sales tax. You then finance the balance, $17,300, at 6 percent annual interest for five years, resulting in a payment of $334 a month. You will eventually pay about $2,800 in interest on the loan. If you save $1,000 a year in gasoline costs, it will take you almost three years to recoup your investment.

Even Better Math

Like many who suddenly are cheered by the fact they are getting terrific mileage in their new hybrid car, you may succumb to the buffet effect -- and drive more -- thus negating some of your savings and extending your payback period.

Two other strategies make more sense. Buy a smaller, less- expensive car for your commute and drive less. The Toyota Yaris and Honda Fit retail between $12,000 and $14,000 for the basic models.

Their fuel efficiency ranges between 28 miles per gallon in the city and 35 on the highway. That's less than the 48 mpg the Prius claims for city driving, but you can put your savings to better use.

The single-best strategy is to take public transportation or car pool and delay your new-car purchase. If you invested a $479 monthly loan payment, according to the newsletter Fidelity Investor's Quarterly, in a portfolio earning 7 percent a year, you could turn a year's worth of car payments into almost $200,000 over 35 years. That's the miracle of compound interest -- if you keep your savings invested.

Can you wait two years and invest those deferred payments? Then it's a $330,000 savings.

Beating Oil Prices

You must think Fidelity is daft suggesting you can get 7 percent in a portfolio now with U.S. stocks swooning, bond yields dropping and the dollar in the dumpster.

Higher returns are available. If you can't beat oil prices, join Wall Street in profiting from them. The SPDR S&P Oil and Gas Production and Exploration exchange-traded fund samples a basket of stocks in the energy-extraction industry.

The energy fund has gained about 40 percent over the past year, according to Bloomberg data.

Energy funds involve concentrated bets with high risk if you guess wrong. If you choose to gamble on these vehicles, do it with no more than 10 percent of your portfolio.

Feel squeamish about investing in oil and gas production? Then just diversify outside of U.S. stock markets. The Janus Overseas Fund is up about 16 percent over the past year, putting it in the top 2 percent of its peers.

Guaranteed Savings

One guaranteed action that will ``green'' your savings is to lower your overall energy use.

Start with your home or apartment. Do an energy audit with the U.S. Department of Energy's free Home Energy Saver program. I plugged in my home zip code and discovered I could save almost $650 a year by making my home more energy efficient.

``The biggest energy savers anyone can do,'' said Fred Maas, a green developer with Black Mountain Ranch LLC in San Diego. ``Add insulation and seal windows. An enormous amount of energy is lost through ventilation.''

Not only will you save money on energy bills if you become more efficient in your home and transportation use, it will benefit the earth in terms of lower carbon dioxide emissions. When economy meets ecology halfway, everyone benefits.

(John F. Wasik, author of ``The Merchant of Power,'' is a Bloomberg News columnist. The opinions expressed are his own.)

To contact the writer of this column: John F. Wasik in Chicago at jwasik@bloomberg.net.

Last Updated: April 21, 2008 00:01 EDT