You could use a series of password protected disk image files instead of folders...
Look at the options for the Disk Utility. You can choose to convert a folder to a disk image. Options for disk images is encryption and writable.
Probably not a good idea for individual default home folder items like ~/Library, Documents, Music...
It is possible to use File Vault to encrypt your home folder though, so you could just move those folders there before/after encrypting.