Tommccarty raises a couple of good points Donna, like, have you got a secondary hard drive to designate as a scratch disk ?
Sure, more physical memory (Ram) is the way to go for pretty much anything these days, but in the interim, if you can set up a scratch disk, this will give PS some virtual memory to use.
It uses this to swap out data temporarily to free up ram when needed.
It should be on a different hard drive to the one that Wndows uses as it's paging file, virtual memory.
This is normally a drive that Windows is not installed on.
If you would like advice on setting this up, give us a shout :-)
As for saving your files.
TIFFs produce the largest file sizes and it's debatable as to whether you can actually benefit hugely enough to justify the space needed.
It's a lossless format, meaning no data is discarded when saving and closing the file as there is when doing so with a JPEG file.
Yes, as you are aware, you can save layered TIFFs, but personally I would recommend you save as PSD files.
PS's native format enables you to save layers, layer styles and all sorts. But crucially, they are also lossless and produce much smaller file sizes than TIFFS (bigger than JPEGS).
You know where to find me if you would like any further info/help with this ;-)