Principal
The original amount you borrowed or invested, before interest.
Principal is the bare amount of money in play, before any interest, fees, or charges. Borrow $10,000 — that's the principal. Invest $10,000 — that's the principal. Everything else is layered on top.
The distinction matters most on amortized loans, where each payment is split between principal and interest. Lenders are required to give you an amortization schedule on request — it shows exactly how much of each payment goes to which side. The numbers can be sobering. On a 30-year mortgage at 7%, the first payment can be more than 80% interest.
Example
If you take out a $300,000 mortgage, $300,000 is the principal. Each monthly payment splits between interest (rent on the money) and principal (paying it back).
Why this matters
Only payments to principal reduce your debt. Interest is the price of staying in debt — it doesn't move you closer to being out.
The catch
On the early years of a long loan (mortgages, big personal loans), most of each payment goes to interest, not principal. That's why the first five years of a 30-year mortgage move the principal balance much less than people expect.