MS Word file size out of control

I have a MS Word 2K document that starts at 64.5KB. When I add at JPG file (92KB), the file balloons to 2.4MB. I need to find a way to reduce the file size. This document will get mailed out so the image needs to be embeded. I have tried stripping any unneccessary formating by saving the file as RTF or Word 6/95. Is there a setting in Tools\Options that I might be missing? Any suggestions would be helpful.