What is principal?

Principal is the amount of money you start with when you save or borrow.

Imagine you have a piggy bank, and it's full of coins, that’s your principal. It’s like the first friend who comes to join you on an adventure. Now, let’s say you put $10 in your piggy bank, that’s your principal. Every time you add more money or get some interest (like a reward for saving), your piggy bank gets bigger, but the original $10 is still there, that’s still your principal.

If you borrow money from a friend and promise to pay it back later, the amount you borrowed at first is your principal. Even if you add extra money for being late or forgetful (that's like interest), the original amount you borrowed, that’s still your principal.

So whether you’re saving or borrowing, your principal is what everything starts with. It’s like the base of a tower, no matter how tall it gets, the bottom part is always there.