Knit small item w/ 2 colors

sorry but I have one more question.I am trying to knit this hat but the color changes are slowing me down. I know there has to be an easier way to work the color changes besides the way I am doing it. Here is the pattern:
http://www.knitlist.com/97gift/babyhat.htm

I am knitting on circular needles if that helps. I have tried to look it up but it looks hard to me because I can’t tell how they are holding the yarns. Please help me. Thanks