What Fat Pete said! You need either sealer or some finish on first, don't try to put the decal on raw wood.
Anyway, I do this on all my Fender-type necks: mask off the headstoack, lay 2-3 couple coats of ntitro down (more or less depending on how heavy...I mist on the first one, let it sit over night then grab some green polishing paper (30 micron) and level out a bit. You can also do 100 grit or something but the idea is to make sure a) you have finish underneath and b) it's flat without imperfections or dust. Wipe down face with naptha, dry for a minute, lightly hit with a tack cloth if I'm not being lazy.
Decal in warm water, tap a little water on the surface where the decal will lay. Apply decal, move to place, gently tab away water and smooth out decal with very clean lint free t...ok you got me, i use a paper towel piece mostly.
Let dry overnight and don't touch it once dry.
Next do not touch face of headstock at all. Definitely don't wipe decal with naptha or really anything. At most a gentle hit from an air can if I spot anything.
First coat or two I mist on, then a couple real coats. Leave overnight and at this point you can breath a little easier. Once dry I may wipe with a fine polishing paper if needed but no hard sanding.
Once about 3-4 more coats are on I'll let it go for a week to settle in a bit, then level sand with as high a grit as I have patience for, like 1000. Dry. Then clean off, all should be level, and then I add 3-4 more coats and leave it for a few weeks. Or longer, I tend to have a lot of projects at once making it easier to be patient. i have to leave notes over everything hanging so I can track where I'm at with coats and so on.
Finally I pull it down, sand and buff out, and it's good as far as the face goes. Don't use satin, instead just use gloss and sand with finer and finer grits until you get the sheen you want. At 1600-2000 grit with all the low shiny spots level sanded out you'll be in good shape. Mention again the polishing papers, really easy to use. Also remember to run these over the edges of the headstock you had masked off at some point, to clear any hard angles in the finish.
For the backs these days, I usually use wipe on poly, around 6 coats, done in 2-3 days. I sand to satin and let it dry another day or two. Especially outside on a hot day they go fast, I just keep them out of the sun in the shed.
